Returns At CHEMTRONICS.Co.Ltd (KOSDAQ:089010) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at CHEMTRONICS.Co.Ltd's (KOSDAQ:089010) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for CHEMTRONICS.Co.Ltd:

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

0.16 = ₩45b ÷ (₩556b - ₩269b) (Based on the trailing twelve months to June 2024).

Therefore, CHEMTRONICS.Co.Ltd has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 6.9% it's much better.

View our latest analysis for CHEMTRONICS.Co.Ltd

Above you can see how the current ROCE for CHEMTRONICS.Co.Ltd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for CHEMTRONICS.Co.Ltd .

So How Is CHEMTRONICS.Co.Ltd's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 168% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that CHEMTRONICS.Co.Ltd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that CHEMTRONICS.Co.Ltd has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From CHEMTRONICS.Co.Ltd's ROCE

To sum it up, CHEMTRONICS.Co.Ltd has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 1.9% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing CHEMTRONICS.Co.Ltd that you might find interesting.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.