What Do The Returns On Capital At RN2 Technologies (KOSDAQ:148250) Tell Us?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at RN2 Technologies (KOSDAQ:148250) and its ROCE trend, we weren't exactly thrilled.

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

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 RN2 Technologies:

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

0.075 = ₩3.6b ÷ (₩55b - ₩8.4b) (Based on the trailing twelve months to September 2020).

Thus, RN2 Technologies has an ROCE of 7.5%. 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.

Check out our latest analysis for RN2 Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for RN2 Technologies' ROCE against it's prior returns. If you'd like to look at how RN2 Technologies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trend of ROCE doesn't look fantastic because it's fallen from 13% five years ago, while the business's capital employed increased by 147%. Usually this isn't ideal, but given RN2 Technologies conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence RN2 Technologies might not have received a full period of earnings contribution from it.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that RN2 Technologies is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 99% over the last three years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One more thing, we've spotted 3 warning signs facing RN2 Technologies that you might find interesting.

While RN2 Technologies 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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