Investors Shouldn't Overlook SILICON2's (KOSDAQ:257720) Impressive Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in SILICON2's (KOSDAQ:257720) returns on capital, so let's have a look.
What Is 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. Analysts use this formula to calculate it for SILICON2:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.35 = ₩190b ÷ (₩668b - ₩123b) (Based on the trailing twelve months to September 2025).
Therefore, SILICON2 has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Retail Distributors industry average of 5.5%.
View our latest analysis for SILICON2
Above you can see how the current ROCE for SILICON2 compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for SILICON2 .
What Can We Tell From SILICON2's ROCE Trend?
The trends we've noticed at SILICON2 are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 35%. The amount of capital employed has increased too, by 1,291%. So we're very much inspired by what we're seeing at SILICON2 thanks to its ability to profitably reinvest capital.
What We Can Learn From SILICON2's ROCE
All in all, it's terrific to see that SILICON2 is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know about the risks facing SILICON2, we've discovered 1 warning sign that you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.