Will SHINWON ConstructionLtd (KOSDAQ:017000) Multiply In Value Going Forward?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at SHINWON ConstructionLtd (KOSDAQ:017000) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on SHINWON ConstructionLtd is:

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).

Therefore, SHINWON ConstructionLtd has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.5%.

See our latest analysis for SHINWON ConstructionLtd

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'd like to look at how SHINWON ConstructionLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For SHINWON ConstructionLtd Tell Us?

We weren't thrilled with the trend because SHINWON ConstructionLtd's ROCE has reduced by 87% over the last two years, while the business employed 24% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. SHINWON ConstructionLtd probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Bottom Line On SHINWON ConstructionLtd's ROCE

In summary, SHINWON ConstructionLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 37% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching SHINWON ConstructionLtd, you might be interested to know about the 3 warning signs that our analysis has discovered.

While SHINWON ConstructionLtd 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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