Can Heungkuk MetaltechLtd (KOSDAQ:010240) Continue To Grow Its Returns On Capital?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Heungkuk MetaltechLtd's (KOSDAQ:010240) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Heungkuk MetaltechLtd:

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

0.15 = ₩12b ÷ (₩106b - ₩22b) (Based on the trailing twelve months to September 2020).

Thus, Heungkuk MetaltechLtd has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.4% it's much better.

See our latest analysis for Heungkuk MetaltechLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Heungkuk MetaltechLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Heungkuk MetaltechLtd Tell Us?

Heungkuk MetaltechLtd is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Heungkuk MetaltechLtd's ROCE

To sum it up, Heungkuk MetaltechLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 370% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Heungkuk MetaltechLtd and understanding this should be part of your investment process.

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

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