Will Korea Computer Terminal's (KOSDAQ:089150) Growth In ROCE Persist?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Korea Computer Terminal (KOSDAQ:089150) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Korea Computer Terminal is:

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

0.035 = ₩1.9b ÷ (₩58b - ₩3.9b) (Based on the trailing twelve months to June 2020).

Thus, Korea Computer Terminal has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 6.2%.

See our latest analysis for Korea Computer Terminal

Historical performance is a great place to start when researching a stock so above you can see the gauge for Korea Computer Terminal's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Korea Computer Terminal, check out these free graphs here.

So How Is Korea Computer Terminal's ROCE Trending?

We're delighted to see that Korea Computer Terminal is reaping rewards from its investments and has now broken into profitability. The company now earns 3.5% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

In Conclusion...

To sum it up, Korea Computer Terminal is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Korea Computer Terminal can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with Korea Computer Terminal (at least 1 which is significant) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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