Does Wooree LightingLtd (KOSDAQ:037400) Have The Makings Of A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Wooree LightingLtd (KOSDAQ:037400) looks quite promising in regards to its trends of return on capital.

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 Wooree LightingLtd is:

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

0.17 = ₩42b ÷ (₩785b - ₩541b) (Based on the trailing twelve months to September 2020).

So, Wooree LightingLtd has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.8% it's much better.

View our latest analysis for Wooree LightingLtd

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

So How Is Wooree LightingLtd's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Wooree LightingLtd. We found that the returns on capital employed over the last five years have risen by 99%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 28% less capital than it was five years ago. Wooree LightingLtd may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a separate but related note, it's important to know that Wooree LightingLtd has a current liabilities to total assets ratio of 69%, which we'd consider pretty high. 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 On Wooree LightingLtd's ROCE

In a nutshell, we're pleased to see that Wooree LightingLtd has been able to generate higher returns from less capital. And since the stock has fallen 29% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Wooree LightingLtd does come with some risks, and we've found 3 warning signs that you should be aware of.

While Wooree LightingLtd 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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