Here’s What’s Happening With Returns At Samil Enterprise (KOSDAQ:002290)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at Samil Enterprise (KOSDAQ:002290) so let's look a bit deeper.

What is 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. To calculate this metric for Samil Enterprise, this is the formula:

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

0.043 = ₩2.6b ÷ (₩64b - ₩3.8b) (Based on the trailing twelve months to September 2020).

So, Samil Enterprise has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.5%.

Check out our latest analysis for Samil Enterprise

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

What Can We Tell From Samil Enterprise's ROCE Trend?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 25% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

As discussed above, Samil Enterprise appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 102% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 3 warning signs for Samil Enterprise (1 is concerning) you should be aware of.

While Samil Enterprise may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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