WOORIM POWER TRAIN SOLUTION (KOSDAQ:101170) Shareholders Will Want The ROCE Trajectory To Continue

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So when we looked at WOORIM POWER TRAIN SOLUTION (KOSDAQ:101170) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for WOORIM POWER TRAIN SOLUTION, this is the formula:

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

0.035 = ₩3.2b ÷ (₩111b - ₩20b) (Based on the trailing twelve months to March 2024).

Thus, WOORIM POWER TRAIN SOLUTION has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 6.5%.

Check out our latest analysis for WOORIM POWER TRAIN SOLUTION

Above you can see how the current ROCE for WOORIM POWER TRAIN SOLUTION compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for WOORIM POWER TRAIN SOLUTION .

How Are Returns Trending?

We're delighted to see that WOORIM POWER TRAIN SOLUTION is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.5%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

In summary, we're delighted to see that WOORIM POWER TRAIN SOLUTION has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 110% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if WOORIM POWER TRAIN SOLUTION can keep these trends up, it could have a bright future ahead.

WOORIM POWER TRAIN SOLUTION does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.