Investors Will Want CammSys' (KOSDAQ:050110) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 CammSys (KOSDAQ:050110) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for CammSys:

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

0.075 = ₩11b ÷ (₩329b - ₩178b) (Based on the trailing twelve months to December 2020).

So, CammSys has an ROCE of 7.5%. On its own that's a low return, but compared to the average of 5.9% generated by the Electronic industry, it's much better.

View our latest analysis for CammSys

Historical performance is a great place to start when researching a stock so above you can see the gauge for CammSys' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of CammSys, check out these free graphs here.

So How Is CammSys' ROCE Trending?

CammSys has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 41% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, CammSys' current liabilities are still rather high at 54% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

To bring it all together, CammSys has done well to increase the returns it's generating from its capital employed. Given the stock has declined 32% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 3 warning signs with CammSys (at least 1 which is potentially serious) , and understanding these would certainly be useful.

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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