Will The ROCE Trend At Suprema HQ (KOSDAQ:094840) Continue?

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Speaking of which, we noticed some great changes in Suprema HQ's (KOSDAQ:094840) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Suprema HQ:

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

0.013 = ₩2.3b ÷ (₩182b - ₩4.9b) (Based on the trailing twelve months to September 2020).

So, Suprema HQ has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.6%.

View our latest analysis for Suprema HQ

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

What Can We Tell From Suprema HQ's ROCE Trend?

We're delighted to see that Suprema HQ is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.3%, which is always encouraging. While returns have increased, the amount of capital employed by Suprema HQ has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

What We Can Learn From Suprema HQ's ROCE

To sum it up, Suprema HQ is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 33% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 2 warning signs facing Suprema HQ that you might find interesting.

While Suprema HQ 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.

If you decide to trade Suprema HQ, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.