Slowing yields at PSK HOLDINGS (KOSDAQ:031980) leave little room for enthusiasm

It is not easy to find a company that has the potential to grow substantially, but it is possible if we look at a few key financial indicators. First, we would like to identify a growing company back on capital employed (ROCE) and alongside this, ever-increasing growth base capital employed. Simply put, these types of businesses are capitalization machines, meaning they continually reinvest their profits at ever-higher rates of return. So when we looked at PSK HOLDINGS’ (KOSDAQ:031980) ROCE trend, we liked what we saw.

Understanding Return on Capital Employed (ROCE)

If you’ve never worked with ROCE, it measures the “return” (pre-tax profit) a company generates from the capital employed in its business. To calculate this metric for PSK HOLDINGS, here’s the formula:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.10 = 39b₩ ÷ (435b₩ – 58b₩) (Based on the last twelve months to March 2024).

So, PSK HOLDINGS has an ROCE of 10%. By itself, this is a standard return, but it is much better than the 5.4% generated by the semiconductor industry.

Check out our latest analysis for PSK HOLDINGS

In the chart above we’ve compared PSK HOLDINGS’s historical ROCE to its past performance, but the future is arguably more important. If you’d like to see what analysts are predicting for the future, you should check out our free analyst report for PSK HOLDINGS.

What does the ROCE trend tell us for PSK HOLDINGS?

If the current return on equity is decent, it hasn’t changed much. Over the last five years, ROCE has remained relatively stable at around 10%, and the company has deployed 324% more capital into its operations. However, given that 10% is a moderate ROCE, it’s good to see that a company can continue to reinvest at these decent rates of return. Steady returns in this range can be unexciting, but if they can be sustained over the long term, they often provide handsome rewards for shareholders.

PSK HOLDINGS has managed to reduce its current liabilities to 13% of its total assets over the past five years. This may eliminate some of the risks inherent in its operations, as the company has fewer outstanding obligations to its suppliers and/or short-term creditors than before.

Our opinion on the ROCE of PSK HOLDINGS

In summary, PSK HOLDINGS has simply been reinvesting capital consistently, at decent rates of return. And long-term investors would be pleased with the 752% return they have received over the last five years. So while the stock may be more “expensive” than it was previously, we think the strong fundamentals warrant a closer look at this stock.

Another thing: we have identified 3 warning signs with PSK HOLDINGS (at least 1 which is worrying), and understanding them would certainly be useful.

For those who like to invest in solid companies, Look at this free list of companies with strong balance sheets and high return on equity.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not factor in the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.

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