Should We Be Excited About The Trends Of Returns At Bixolon (KOSDAQ:093190)?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Bixolon (KOSDAQ:093190), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Bixolon is:

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

0.027 = ₩4.1b ÷ (₩165b - ₩13b) (Based on the trailing twelve months to December 2020).

Thus, Bixolon has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.6%.

See our latest analysis for Bixolon

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bixolon's ROCE against it's prior returns. If you're interested in investigating Bixolon's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Bixolon Tell Us?

On the surface, the trend of ROCE at Bixolon doesn't inspire confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 2.7%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Bixolon's ROCE

We're a bit apprehensive about Bixolon because despite more capital being deployed in the business, returns on that capital and sales have both fallen. It should come as no surprise then that the stock has fallen 14% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 3 warning signs for Bixolon (1 is concerning) you should be aware of.

While Bixolon 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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