Young Poong Precision (KOSDAQ:036560) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, we've noticed some promising trends at Young Poong Precision (KOSDAQ:036560) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Young Poong Precision is:

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

0.068 = ₩24b ÷ (₩380b - ₩32b) (Based on the trailing twelve months to March 2024).

Therefore, Young Poong Precision has an ROCE of 6.8%. In absolute terms, that's a low return but it's around the Machinery industry average of 6.3%.

Check out our latest analysis for Young Poong Precision

Historical performance is a great place to start when researching a stock so above you can see the gauge for Young Poong Precision'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 Young Poong Precision.

How Are Returns Trending?

Young Poong Precision has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 127% whilst employing roughly the same amount of capital. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To bring it all together, Young Poong Precision has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 28% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing Young Poong Precision, we've discovered 1 warning sign that you should be aware of.

While Young Poong Precision 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com