The Trend Of High Returns At JNK Heaters (KOSDAQ:126880) Has Us Very Interested

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at the ROCE trend of JNK Heaters (KOSDAQ:126880) we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for JNK Heaters:

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

0.22 = ₩25b ÷ (₩183b - ₩72b) (Based on the trailing twelve months to September 2020).

So, JNK Heaters has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Machinery industry average of 5.8%.

View our latest analysis for JNK Heaters

Historical performance is a great place to start when researching a stock so above you can see the gauge for JNK Heaters' ROCE against it's prior returns. If you're interested in investigating JNK Heaters' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From JNK Heaters' ROCE Trend?

Investors would be pleased with what's happening at JNK Heaters. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 77%. So we're very much inspired by what we're seeing at JNK Heaters thanks to its ability to profitably reinvest capital.

One more thing to note, JNK Heaters has decreased current liabilities to 39% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

To sum it up, JNK Heaters has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 54% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about JNK Heaters, we've spotted 2 warning signs, and 1 of them is potentially serious.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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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