The Trends At Kia Motors (KRX:000270) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Kia Motors (KRX:000270) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kia Motors:

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

0.035 = ₩1.4t ÷ (₩62t - ₩23t) (Based on the trailing twelve months to September 2020).

Thus, Kia Motors has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Auto industry average of 5.2%.

See our latest analysis for Kia Motors

Above you can see how the current ROCE for Kia Motors compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Kia Motors here for free.

So How Is Kia Motors' ROCE Trending?

When we looked at the ROCE trend at Kia Motors, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.5% from 7.5% five years ago. However it looks like Kia Motors might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Kia Motors is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 30% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for Kia Motors that we think you should be aware of.

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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