Samsung Electro-Mechanics (KRX:009150) Will Be Hoping To Turn Its Returns On Capital Around

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Samsung Electro-Mechanics (KRX:009150), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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 Samsung Electro-Mechanics:

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

0.076 = ₩713b ÷ (₩13t - ₩3.3t) (Based on the trailing twelve months to September 2024).

Thus, Samsung Electro-Mechanics has an ROCE of 7.6%. On its own, that's a low figure but it's around the 6.9% average generated by the Electronic industry.

View our latest analysis for Samsung Electro-Mechanics

Above you can see how the current ROCE for Samsung Electro-Mechanics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Samsung Electro-Mechanics .

The Trend Of ROCE

When we looked at the ROCE trend at Samsung Electro-Mechanics, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.6% from 14% five years ago. 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.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Samsung Electro-Mechanics. These trends are starting to be recognized by investors since the stock has delivered a 0.02% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you're still interested in Samsung Electro-Mechanics it's worth checking out our FREE intrinsic value approximation for A009150 to see if it's trading at an attractive price in other respects.

While Samsung Electro-Mechanics 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.