Semyung Electric MachineryLtd (KOSDAQ:017510) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Semyung Electric MachineryLtd (KOSDAQ:017510) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Semyung Electric MachineryLtd:

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

0.036 = ₩3.0b ÷ (₩88b - ₩3.5b) (Based on the trailing twelve months to December 2024).

So, Semyung Electric MachineryLtd has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 7.2%.

View our latest analysis for Semyung Electric MachineryLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Semyung Electric MachineryLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Semyung Electric MachineryLtd .

How Are Returns Trending?

While there are companies with higher returns on capital out there, we still find the trend at Semyung Electric MachineryLtd promising. 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 67% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

As discussed above, Semyung Electric MachineryLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 57% return over the last five years. 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.

Semyung Electric MachineryLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

While Semyung Electric MachineryLtd 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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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.