Returns On Capital Are Showing Encouraging Signs At Wonik PNE (KOSDAQ:131390)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Wonik PNE (KOSDAQ:131390) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Wonik PNE, this is the formula:

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

0.19 = ₩21b ÷ (₩207b - ₩101b) (Based on the trailing twelve months to December 2020).

Thus, Wonik PNE has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.8% it's much better.

Check out our latest analysis for Wonik PNE

Above you can see how the current ROCE for Wonik PNE compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Wonik PNE here for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Wonik PNE. The data shows that returns on capital have increased substantially over the last five years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 145% more capital is being employed now too. So we're very much inspired by what we're seeing at Wonik PNE thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 49% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On Wonik PNE's ROCE

To sum it up, Wonik PNE has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

One more thing, we've spotted 1 warning sign facing Wonik PNE that you might find interesting.

While Wonik PNE isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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