Samsung Climate Control's (KRX:006660) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So when we looked at Samsung Climate Control (KRX:006660) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Samsung Climate Control, this is the formula:

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

0.018 = ₩5.1b ÷ (₩318b - ₩37b) (Based on the trailing twelve months to March 2024).

So, Samsung Climate Control has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 8.7%.

See our latest analysis for Samsung Climate Control

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

How Are Returns Trending?

The fact that Samsung Climate Control is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 1.8% which is a sight for sore eyes. Not only that, but the company is utilizing 27% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Samsung Climate Control's ROCE

To the delight of most shareholders, Samsung Climate Control has now broken into profitability. Since the stock has only returned 6.5% 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.

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

While Samsung Climate Control isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.