Returns On Capital Are Showing Encouraging Signs At U.I.DisplayLtd (KOSDAQ:069330)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 U.I.DisplayLtd's (KOSDAQ:069330) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on U.I.DisplayLtd is:

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

0.0087 = ₩244m ÷ (₩43b - ₩15b) (Based on the trailing twelve months to December 2024).

So, U.I.DisplayLtd has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 6.5%.

See our latest analysis for U.I.DisplayLtd

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

How Are Returns Trending?

The fact that U.I.DisplayLtd is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.9% on its capital. And unsurprisingly, like most companies trying to break into the black, U.I.DisplayLtd is utilizing 60% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, U.I.DisplayLtd has decreased current liabilities to 35% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

Overall, U.I.DisplayLtd gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a solid 66% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing U.I.DisplayLtd that you might find interesting.

While U.I.DisplayLtd 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.