Here’s What’s Happening With Returns At Comunication WeaverLtd (KOSDAQ:056360)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at Comunication WeaverLtd (KOSDAQ:056360) and its trend of ROCE, we really liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Comunication WeaverLtd, this is the formula:

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

0.071 = ₩8.8b ÷ (₩150b - ₩26b) (Based on the trailing twelve months to September 2020).

Therefore, Comunication WeaverLtd has an ROCE of 7.1%. Even though it's in line with the industry average of 7.2%, it's still a low return by itself.

Check out our latest analysis for Comunication WeaverLtd

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

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 62% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Comunication WeaverLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 117% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Comunication WeaverLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

While Comunication WeaverLtd 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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