OmnisystemLtd (KOSDAQ:057540) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in OmnisystemLtd's (KOSDAQ:057540) returns on capital, so let's have a look.

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. The formula for this calculation on OmnisystemLtd is:

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

0.033 = ₩3.6b ÷ (₩127b - ₩20b) (Based on the trailing twelve months to September 2024).

Therefore, OmnisystemLtd has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 6.9%.

View our latest analysis for OmnisystemLtd

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

The Trend Of ROCE

Shareholders will be relieved that OmnisystemLtd has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 3.3% on its capital. While returns have increased, the amount of capital employed by OmnisystemLtd has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

As discussed above, OmnisystemLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has fallen 36% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 3 warning signs for OmnisystemLtd (1 makes us a bit uncomfortable) you should be aware of.

While OmnisystemLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.