Stock Analysis

Are Investors Overlooking Returns On Capital At Woowon Development (KOSDAQ:046940)?

KOSDAQ:A046940
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Ergo, when we looked at the ROCE trends at Woowon Development (KOSDAQ:046940), we liked what we saw.

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. To calculate this metric for Woowon Development, this is the formula:

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

0.25 = ₩29b ÷ (₩193b - ₩78b) (Based on the trailing twelve months to September 2020).

Therefore, Woowon Development has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Construction industry average of 9.0%.

See our latest analysis for Woowon Development

roce
KOSDAQ:A046940 Return on Capital Employed March 8th 2021

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

What Does the ROCE Trend For Woowon Development Tell Us?

Woowon Development deserves to be commended in regards to it's returns. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 103% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

On a side note, Woowon Development has done well to reduce current liabilities to 40% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line

In short, we'd argue Woowon Development has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Therefore it's no surprise that shareholders have earned a respectable 43% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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