Returns Are Gaining Momentum At A-Jin IndustrialLtd (KOSDAQ:013310)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, A-Jin IndustrialLtd (KOSDAQ:013310) looks quite promising in regards to its trends of return on capital.

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

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

0.085 = ₩59b ÷ (₩1.0t - ₩330b) (Based on the trailing twelve months to March 2024).

Thus, A-Jin IndustrialLtd has an ROCE of 8.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.1%.

Check out 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of A-Jin IndustrialLtd.

What Does the ROCE Trend For A-Jin IndustrialLtd Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.5%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 104%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 32%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On A-Jin IndustrialLtd's ROCE

All in all, it's terrific to see that A-Jin IndustrialLtd is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 38% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

A-Jin IndustrialLtd does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is potentially serious...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.