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Here's What's Concerning About Point Mobile's (KOSDAQ:318020) 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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Point Mobile (KOSDAQ:318020) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on Point Mobile is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = ₩1.5b ÷ (₩80b - ₩19b) (Based on the trailing twelve months to June 2024).
So, Point Mobile has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 5.7%.
Check out our latest analysis for Point Mobile
Historical performance is a great place to start when researching a stock so above you can see the gauge for Point Mobile's ROCE against it's prior returns. If you're interested in investigating Point Mobile's past further, check out this free graph covering Point Mobile's past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of Point Mobile's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 17%, but since then they've fallen to 2.4%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
The Bottom Line
In summary, we're somewhat concerned by Point Mobile's diminishing returns on increasing amounts of capital. We expect this has contributed to the stock plummeting 81% during the last three years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
If you want to continue researching Point Mobile, you might be interested to know about the 1 warning sign that our analysis has discovered.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
About KOSDAQ:A318020
Point Mobile
Manufactures and sells handheld devices worldwide.