Returns On Capital - An Important Metric For Samji Electronics (KOSDAQ:037460)

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Samji Electronics (KOSDAQ:037460) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Samji Electronics, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = ₩49b ÷ (₩692b - ₩285b) (Based on the trailing twelve months to September 2020).

So, Samji Electronics has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 7.2% it's much better.

See our latest analysis for Samji Electronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Samji Electronics' ROCE against it's prior returns. If you'd like to look at how Samji Electronics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Samji Electronics' ROCE Trending?

We like the trends that we're seeing from Samji Electronics. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 156%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 41%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line On Samji Electronics' ROCE

All in all, it's terrific to see that Samji Electronics is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Samji Electronics does have some risks though, and we've spotted 1 warning sign for Samji Electronics that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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