SEMCNS (KOSDAQ:252990) Will Want To Turn Around Its Return Trends

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after briefly looking over the numbers, we don't think SEMCNS (KOSDAQ:252990) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Our free stock report includes 1 warning sign investors should be aware of before investing in SEMCNS. Read for free now.

Return On Capital Employed (ROCE): What Is It?

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 SEMCNS:

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

0.026 = ₩5.2b ÷ (₩222b - ₩25b) (Based on the trailing twelve months to December 2024).

Thus, SEMCNS has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 6.5%.

View our latest analysis for SEMCNS

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

So How Is SEMCNS' ROCE Trending?

In terms of SEMCNS' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 4.8% 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, SEMCNS has done well to pay down its current liabilities to 11% of total assets. That could partly explain why the ROCE has dropped. 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 Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that SEMCNS is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 27% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching SEMCNS, you might be interested to know about the 1 warning sign that our analysis has discovered.

While SEMCNS 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.