The Returns At WiSoLLTD (KOSDAQ:122990) Provide Us With Signs Of What's To Come

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. In light of that, when we looked at WiSoLLTD (KOSDAQ:122990) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. Analysts use this formula to calculate it for WiSoLLTD:

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

0.047 = ₩16b ÷ (₩436b - ₩87b) (Based on the trailing twelve months to September 2020).

So, WiSoLLTD has an ROCE of 4.7%. On its own, that's a low figure but it's around the 5.6% average generated by the Electronic industry.

View our latest analysis for WiSoLLTD

Above you can see how the current ROCE for WiSoLLTD compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for WiSoLLTD.

What Can We Tell From WiSoLLTD's ROCE Trend?

When we looked at the ROCE trend at WiSoLLTD, we didn't gain much confidence. To be more specific, ROCE has fallen from 22% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, WiSoLLTD has done well to pay down its current liabilities to 20% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for WiSoLLTD. And the stock has followed suit returning a meaningful 41% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

WiSoLLTD does have some risks though, and we've spotted 3 warning signs for WiSoLLTD that you might be interested in.

While WiSoLLTD 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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