Samsung Electro-Mechanics (KRX:009150) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Having said that, from a first glance at Samsung Electro-Mechanics (KRX:009150) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.073 = ₩639b ÷ (₩12t - ₩2.9t) (Based on the trailing twelve months to December 2023).

Therefore, Samsung Electro-Mechanics has an ROCE of 7.3%. In absolute terms, that's a low return but it's around the Electronic industry average of 6.2%.

See our latest analysis for Samsung Electro-Mechanics

In the above chart we have measured Samsung Electro-Mechanics' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Samsung Electro-Mechanics .

How Are Returns Trending?

On the surface, the trend of ROCE at Samsung Electro-Mechanics doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.3% from 19% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Samsung Electro-Mechanics' ROCE

To conclude, we've found that Samsung Electro-Mechanics is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 43% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 1 warning sign facing Samsung Electro-Mechanics that you might find interesting.

While Samsung Electro-Mechanics 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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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.