Returns On Capital At SHINWON CONSTRUCTION (KOSDAQ:017000) Paint An Interesting Picture

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at SHINWON CONSTRUCTION (KOSDAQ:017000), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for SHINWON CONSTRUCTION, this is the formula:

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

0.017 = ₩2.0b ÷ (₩176b - ₩57b) (Based on the trailing twelve months to March 2020).

So, SHINWON CONSTRUCTION has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 9.0%.

See our latest analysis for SHINWON CONSTRUCTION

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 want to delve into the historical earnings, revenue and cash flow of SHINWON CONSTRUCTION, check out these free graphs here.

So How Is SHINWON CONSTRUCTION's ROCE Trending?

We weren't thrilled with the trend because SHINWON CONSTRUCTION's ROCE has reduced by 87% over the last two years, while the business employed 24% more capital. Usually this isn't ideal, but given SHINWON CONSTRUCTION conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence SHINWON CONSTRUCTION might not have received a full period of earnings contribution from it.

Our Take On SHINWON CONSTRUCTION's ROCE

In summary, SHINWON CONSTRUCTION is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 20% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing SHINWON CONSTRUCTION, we've discovered 4 warning signs that 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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