Here's What To Make Of Ubiquoss' (KOSDAQ:264450) 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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Ubiquoss (KOSDAQ:264450), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Ubiquoss:

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

0.17 = ₩17b ÷ (₩123b - ₩23b) (Based on the trailing twelve months to June 2020).

So, Ubiquoss has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Communications industry.

View our latest analysis for Ubiquoss

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Ubiquoss' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Ubiquoss, we didn't gain much confidence. Around two years ago the returns on capital were 25%, but since then they've fallen to 17%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Ubiquoss' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ubiquoss. And the stock has done incredibly well with a 149% return over the last three years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a separate note, we've found 1 warning sign for Ubiquoss you'll probably want to know about.

While Ubiquoss 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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