What Can The Trends At Korea Computer Terminal (KOSDAQ:089150) Tell Us About Their Returns?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at Korea Computer Terminal (KOSDAQ:089150) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Korea Computer Terminal, this is the formula:

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

0.036 = ₩2.0b ÷ (₩57b - ₩2.0b) (Based on the trailing twelve months to September 2020).

So, Korea Computer Terminal has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Tech industry average of 5.1%.

Check out our latest analysis for Korea Computer Terminal

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'd like to look at how Korea Computer Terminal has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 1,757% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To bring it all together, Korea Computer Terminal has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Korea Computer Terminal does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Korea Computer Terminal 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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