Returns On Capital Are A Standout For SaedongLtd (KOSDAQ:053060)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of SaedongLtd (KOSDAQ:053060) we really liked what we saw.

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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. To calculate this metric for SaedongLtd, this is the formula:

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

0.23 = ₩11b ÷ (₩109b - ₩62b) (Based on the trailing twelve months to December 2024).

Therefore, SaedongLtd has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 7.5% earned by companies in a similar industry.

See our latest analysis for SaedongLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for SaedongLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of SaedongLtd.

What Can We Tell From SaedongLtd's ROCE Trend?

We're delighted to see that SaedongLtd is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 23% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, SaedongLtd is utilizing 38% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 57%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Bottom Line On SaedongLtd's ROCE

In summary, it's great to see that SaedongLtd has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 3.2% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 1 warning sign with SaedongLtd and understanding it should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.