A-Jin IndustrialLtd's (KOSDAQ:013310) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating A-Jin IndustrialLtd (KOSDAQ:013310), we don't think it's current trends fit the mold of a multi-bagger.

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What Is 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. The formula for this calculation on A-Jin IndustrialLtd is:

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

0.061 = ₩48b ÷ (₩1.2t - ₩393b) (Based on the trailing twelve months to September 2024).

So, A-Jin IndustrialLtd has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 8.1%.

See our latest analysis for A-Jin IndustrialLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating A-Jin IndustrialLtd's past further, check out this free graph covering A-Jin IndustrialLtd's past earnings, revenue and cash flow.

What Can We Tell From A-Jin IndustrialLtd's ROCE Trend?

There are better returns on capital out there than what we're seeing at A-Jin IndustrialLtd. Over the past five years, ROCE has remained relatively flat at around 6.1% and the business has deployed 102% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On A-Jin IndustrialLtd's ROCE

As we've seen above, A-Jin IndustrialLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 81% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing: We've identified 5 warning signs with A-Jin IndustrialLtd (at least 2 which are potentially serious) , and understanding these would certainly be useful.

While A-Jin IndustrialLtd 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.