What We Make Of Sungdo Engineering & Construction's (KOSDAQ:037350) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Sungdo Engineering & Construction (KOSDAQ:037350) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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 Sungdo Engineering & Construction is:

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

0.10 = ₩30b ÷ (₩459b - ₩168b) (Based on the trailing twelve months to September 2020).

So, Sungdo Engineering & Construction has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.0% generated by the Construction industry.

See our latest analysis for Sungdo Engineering & Construction

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sungdo Engineering & Construction's ROCE against it's prior returns. If you'd like to look at how Sungdo Engineering & 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

Sungdo Engineering & 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 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 53% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Sungdo Engineering & Construction's ROCE

To sum it up, Sungdo Engineering & Construction has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 32% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing: We've identified 4 warning signs with Sungdo Engineering & Construction (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Sungdo Engineering & Construction 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. 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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