Should You Be Impressed By Bixolon's (KOSDAQ:093190) Returns on Capital?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Bixolon (KOSDAQ:093190) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on Bixolon is:

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

0.041 = ₩6.3b ÷ (₩162b - ₩11b) (Based on the trailing twelve months to September 2020).

So, Bixolon has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.6%.

Check out our latest analysis for Bixolon

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're interested in investigating Bixolon's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Bixolon's ROCE Trending?

On the surface, the trend of ROCE at Bixolon doesn't inspire confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 4.1%. However it looks like Bixolon might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Bixolon's ROCE

Bringing it all together, while we're somewhat encouraged by Bixolon's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 30% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Bixolon (at least 1 which is concerning) , and understanding these would certainly be useful.

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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