What Can The Trends At CHEMTRONICS.CO.Ltd (KOSDAQ:089010) Tell Us About Their Returns?

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, CHEMTRONICS.CO.Ltd (KOSDAQ:089010) looks quite promising in regards to its trends of return on capital.

What is 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 CHEMTRONICS.CO.Ltd is:

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

0.11 = ₩19b ÷ (₩382b - ₩211b) (Based on the trailing twelve months to September 2020).

So, CHEMTRONICS.CO.Ltd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.6% generated by the Electronic industry.

See our latest analysis for CHEMTRONICS.CO.Ltd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of CHEMTRONICS.CO.Ltd, check out these free graphs here.

The Trend Of ROCE

The fact that CHEMTRONICS.CO.Ltd is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 11% which is a sight for sore eyes. In addition to that, CHEMTRONICS.CO.Ltd is employing 33% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a separate but related note, it's important to know that CHEMTRONICS.CO.Ltd has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On CHEMTRONICS.CO.Ltd's ROCE

In summary, it's great to see that CHEMTRONICS.CO.Ltd has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 5 warning signs for CHEMTRONICS.CO.Ltd (2 are concerning) you should be aware of.

While CHEMTRONICS.CO.Ltd 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. 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.
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