Returns At Hyundai Industrial (KOSDAQ:170030) Are On The Way Up

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Hyundai Industrial's (KOSDAQ:170030) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Hyundai Industrial is:

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

0.095 = ₩15b ÷ (₩212b - ₩58b) (Based on the trailing twelve months to September 2024).

Therefore, Hyundai Industrial has an ROCE of 9.5%. On its own, that's a low figure but it's around the 8.2% average generated by the Auto Components industry.

View our latest analysis for Hyundai Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hyundai Industrial's ROCE against it's prior returns. If you'd like to look at how Hyundai Industrial has performed in the past in other metrics, you can view this free graph of Hyundai Industrial's past earnings, revenue and cash flow.

What Can We Tell From Hyundai Industrial's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.5%. 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 47%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Hyundai Industrial's ROCE

All in all, it's terrific to see that Hyundai Industrial is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 58% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Hyundai Industrial can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Hyundai Industrial, we've discovered 3 warning signs that you should be aware of.

While Hyundai Industrial 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.