The Return Trends At KHVATECLtd (KOSDAQ:060720) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in KHVATECLtd's (KOSDAQ:060720) returns on capital, so let's have a look.

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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 KHVATECLtd:

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

0.082 = ₩22b ÷ (₩387b - ₩120b) (Based on the trailing twelve months to December 2024).

Therefore, KHVATECLtd has an ROCE of 8.2%. On its own that's a low return, but compared to the average of 6.5% generated by the Electronic industry, it's much better.

View our latest analysis for KHVATECLtd

Above you can see how the current ROCE for KHVATECLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for KHVATECLtd .

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 32%. So we're very much inspired by what we're seeing at KHVATECLtd thanks to its ability to profitably reinvest capital.

Our Take On KHVATECLtd's ROCE

To sum it up, KHVATECLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 45% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

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

While KHVATECLtd 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.