Why We Like The Returns At Seohee Construction (KOSDAQ:035890)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. And in light of that, the trends we're seeing at Seohee Construction's (KOSDAQ:035890) look very promising so lets take a look.

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. The formula for this calculation on Seohee Construction is:

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

0.26 = ₩164b ÷ (₩1.2t - ₩604b) (Based on the trailing twelve months to September 2020).

Thus, Seohee Construction has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 8.4% earned by companies in a similar industry.

Check out our latest analysis for Seohee Construction

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

The Trend Of ROCE

Seohee Construction is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 26%. The amount of capital employed has increased too, by 75%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Seohee Construction's current liabilities are still rather high at 49% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

All in all, it's terrific to see that Seohee Construction is reaping the rewards from prior investments and is growing its capital base. And with a respectable 55% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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 2 warning signs with Seohee Construction and understanding these should be part of your investment process.

Seohee Construction is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. 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.
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