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Returns on capital show encouraging signs at iCRAFT (KOSDAQ:052460)

If we want to find a stock that can multiply over the long term, what underlying trends should we look for? First, we want to identify a growth yield on the invested capital (ROCE) and also an ever-increasing value base of the invested capital. This shows us that it is a compounding machine, capable of continually reinvesting its earnings into the business and generating higher returns. So when we looked iCRAFT (KOSDAQ:052460) and the ROCE trend, we really liked what we saw.

What is return on capital employed (ROCE)?

To be clear, ROCE is a measure for evaluating how much pre-tax income (as a percentage) a company earns on the capital invested in its business. To calculate this statistic for iCRAFT, this is the formula:

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

0.12 = ₩5.2b ÷ (₩75b – ₩32b) (Based on the last twelve months up to and including December 2023).

So, iCRAFT has a ROCE of 12%. In absolute terms that is a satisfactory return, but compared to the IT sector average of 8.2% it is much better.

Check out our latest analysis for iCRAFT

KOSDAQ:A052460 Return on Capital Employed May 21, 2024

While the past is not representative of the future, it can be useful to know how a company has performed historically. That’s why we have this diagram above. If you want to see how iCRAFT has performed in the past in terms of other metrics, you can check this out free graph of iCRAFT’s past earnings, revenue and cash flow.

What does the ROCE trend for iCRAFT tell us?

Investors would be happy with what’s happening at iCRAFT. The data shows that returns on capital have increased significantly to 12% over the past five years. In fact, the company is earning more per dollar invested, and is now using 30% more capital. The increasing return on a growing amount of capital is common among multi-baggers and that’s why we’re impressed.

As a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in short-term debt. Short-term debt has risen to 42% of total assets, meaning the company is now increasingly financed by suppliers or short-term creditors, for example. And with current debt levels at this level, that is quite high.

The end result of iCRAFT’s ROCE

Overall, it’s great to see iCRAFT reaping the benefits of previous investments and expanding its capital base. Investors may not yet be impressed by the favorable underlying trends, as the stock has returned just 10% to shareholders over the past five years. So researching more about this stock could reveal a good opportunity if its valuation and other metrics stack up.

On a different note: we found it 3 Warning Signs for iCRAFT which you probably want to know more about.

For those who like to invest solid companies, take a look at this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we help make it simple.

Find out if iCRAFT is potentially over or undervalued by checking out our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.