Some Investors May Be Worried About Seronics' (KOSDAQ:042600) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Seronics (KOSDAQ:042600), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Seronics, this is the formula:

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

0.019 = ₩3.8b ÷ (₩304b - ₩109b) (Based on the trailing twelve months to March 2024).

Thus, Seronics has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Electronic industry average of 6.9%.

See our latest analysis for Seronics

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

How Are Returns Trending?

When we looked at the ROCE trend at Seronics, we didn't gain much confidence. Around five years ago the returns on capital were 5.4%, but since then they've fallen to 1.9%. However it looks like Seronics might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

The Bottom Line On Seronics' ROCE

In summary, Seronics is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 230% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Seronics, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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