Myoung Shin IndustrialLtd (KRX:009900) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So while Myoung Shin IndustrialLtd (KRX:009900) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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. To calculate this metric for Myoung Shin IndustrialLtd, this is the formula:

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

0.20 = ₩168b ÷ (₩1.2t - ₩304b) (Based on the trailing twelve months to June 2024).

Thus, Myoung Shin IndustrialLtd has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 9.1% earned by companies in a similar industry.

Check out our latest analysis for Myoung Shin IndustrialLtd

In the above chart we have measured Myoung Shin IndustrialLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Myoung Shin IndustrialLtd for free.

What Can We Tell From Myoung Shin IndustrialLtd's ROCE Trend?

When we looked at the ROCE trend at Myoung Shin IndustrialLtd, we didn't gain much confidence. Historically returns on capital were even higher at 30%, but they have dropped over the last five years. However it looks like Myoung Shin IndustrialLtd 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Myoung Shin IndustrialLtd has decreased its current liabilities to 26% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From Myoung Shin IndustrialLtd's ROCE

Bringing it all together, while we're somewhat encouraged by Myoung Shin IndustrialLtd's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 55% over the last three years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Myoung Shin IndustrialLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for A009900 on our platform quite valuable.

Myoung Shin IndustrialLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.