The Returns At Geumhwa Plant Service & Construction (KOSDAQ:036190) Provide Us With Signs Of What's To Come

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Geumhwa Plant Service & Construction's (KOSDAQ:036190) trend of ROCE, we liked what we saw.

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. The formula for this calculation on Geumhwa Plant Service & Construction is:

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

0.15 = ₩39b ÷ (₩293b - ₩33b) (Based on the trailing twelve months to September 2020).

Thus, Geumhwa Plant Service & Construction has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 9.0% it's much better.

See our latest analysis for Geumhwa Plant Service & 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 Geumhwa Plant Service & Construction, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 80% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

In the end, Geumhwa Plant Service & Construction has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 12% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you're still interested in Geumhwa Plant Service & Construction it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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