Has SurplusGLOBAL (KOSDAQ:140070) Got What It Takes To Become A Multi-Bagger?

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at SurplusGLOBAL (KOSDAQ:140070) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for SurplusGLOBAL:

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

0.093 = ₩16b ÷ (₩218b - ₩47b) (Based on the trailing twelve months to September 2020).

So, SurplusGLOBAL has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 5.6% generated by the Electronic industry, it's much better.

View our latest analysis for SurplusGLOBAL

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

The Trend Of ROCE

In terms of SurplusGLOBAL's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 28%, but since then they've fallen to 9.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, SurplusGLOBAL has done well to pay down its current liabilities to 21% 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. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On SurplusGLOBAL's ROCE

In summary, SurplusGLOBAL is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 21% in the last three years. 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 final note, you should learn about the 3 warning signs we've spotted with SurplusGLOBAL (including 1 which is a bit concerning) .

While SurplusGLOBAL isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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