Will the Promising Trends At OE Solutions (KOSDAQ:138080) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in OE Solutions' (KOSDAQ:138080) returns on capital, so let's have a look.

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. The formula for this calculation on OE Solutions is:

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

0.14 = ₩20b ÷ (₩193b - ₩47b) (Based on the trailing twelve months to September 2020).

So, OE Solutions has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 7.2% it's much better.

Check out our latest analysis for OE Solutions

Above you can see how the current ROCE for OE Solutions 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 OE Solutions.

So How Is OE Solutions' ROCE Trending?

We're delighted to see that OE Solutions is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 14% on its capital. In addition to that, OE Solutions is employing 173% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Overall, OE Solutions gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 493% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if OE Solutions can keep these trends up, it could have a bright future ahead.

On a final note, we've found 3 warning signs for OE Solutions that we think you should be aware of.

While OE Solutions 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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