Can Woory Industrial HoldingsLtd (KOSDAQ:072470) Continue To Grow Its Returns On Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Woory Industrial HoldingsLtd (KOSDAQ:072470) looks quite promising in regards to its trends of return on capital.

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 Woory Industrial HoldingsLtd is:

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

0.027 = ₩6.8b ÷ (₩441b - ₩194b) (Based on the trailing twelve months to September 2020).

So, Woory Industrial HoldingsLtd has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 4.1%.

See our latest analysis for Woory Industrial HoldingsLtd

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 Woory Industrial HoldingsLtd's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Woory Industrial HoldingsLtd is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 2.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Woory Industrial HoldingsLtd is utilizing 43% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Another thing to note, Woory Industrial HoldingsLtd has a high ratio of current liabilities to total assets of 44%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Woory Industrial HoldingsLtd's ROCE

Long story short, we're delighted to see that Woory Industrial HoldingsLtd's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 42% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Woory Industrial HoldingsLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those make us uncomfortable...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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