Returns On Capital At BioSmartLtd (KOSDAQ:038460) Paint An Interesting Picture

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating BioSmartLtd (KOSDAQ:038460), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on BioSmartLtd is:

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

0.012 = ₩1.6b ÷ (₩177b - ₩52b) (Based on the trailing twelve months to September 2020).

So, BioSmartLtd has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 5.1%.

View our latest analysis for BioSmartLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of BioSmartLtd, check out these free graphs here.

What Can We Tell From BioSmartLtd's ROCE Trend?

When we looked at the ROCE trend at BioSmartLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 3.4% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On BioSmartLtd's ROCE

In summary, BioSmartLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 8.9% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing, we've spotted 4 warning signs facing BioSmartLtd that you might find interesting.

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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