Here's What's Concerning About PNC Technologies' (KOSDAQ:237750) Returns On Capital

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at PNC Technologies (KOSDAQ:237750) and its ROCE trend, we weren't exactly thrilled.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for PNC Technologies, this is the formula:

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

0.018 = ₩1.1b ÷ (₩71b - ₩7.1b) (Based on the trailing twelve months to September 2020).

Thus, PNC Technologies has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.6%.

See our latest analysis for PNC Technologies

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

What Can We Tell From PNC Technologies' ROCE Trend?

On the surface, the trend of ROCE at PNC Technologies doesn't inspire confidence. To be more specific, ROCE has fallen from 23% over the last five years. However it looks like PNC Technologies might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by PNC Technologies' reinvestment in its own business, we're aware that returns are shrinking. And in the last three years, the stock has given away 24% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

If you'd like to know more about PNC Technologies, we've spotted 4 warning signs, and 1 of them is significant.

While PNC 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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