Has Woory Industrial (KOSDAQ:215360) Got What It Takes To Become A Multi-Bagger?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Woory Industrial (KOSDAQ:215360) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 is:

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

0.066 = ₩8.5b ÷ (₩294b - ₩166b) (Based on the trailing twelve months to September 2020).

Therefore, Woory Industrial has an ROCE of 6.6%. In absolute terms, that's a low return, but it's much better than the Auto Components industry average of 4.1%.

View our latest analysis for Woory Industrial

In the above chart we have measured Woory Industrial's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Woory Industrial.

So How Is Woory Industrial's ROCE Trending?

In terms of Woory Industrial's historical ROCE movements, the trend isn't fantastic. Over the last four years, returns on capital have decreased to 6.6% from 20% four years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a separate but related note, it's important to know that Woory Industrial has a current liabilities to total assets ratio of 56%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Woory Industrial's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Woory Industrial have fallen, meanwhile the business is employing more capital than it was four years ago. It should come as no surprise then that the stock has fallen 31% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Woory Industrial does have some risks though, and we've spotted 1 warning sign for Woory Industrial that you might be interested in.

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. 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.
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