SEKONIX (KOSDAQ:053450) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at SEKONIX (KOSDAQ:053450) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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 SEKONIX, this is the formula:

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

0.10 = ₩15b ÷ (₩271b - ₩118b) (Based on the trailing twelve months to September 2024).

So, SEKONIX has an ROCE of 10.0%. In absolute terms, that's a low return, but it's much better than the Electronic industry average of 7.2%.

View our latest analysis for SEKONIX

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

What Can We Tell From SEKONIX's ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at SEKONIX. We found that the returns on capital employed over the last five years have risen by 145%. The company is now earning ₩0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 38% less than it was five years ago, which can be indicative of a business that's improving its efficiency. SEKONIX may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, SEKONIX's current liabilities are still rather high at 43% 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

In a nutshell, we're pleased to see that SEKONIX has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 13% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 3 warning signs for SEKONIX you'll probably want to know about.

While SEKONIX may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.