Kumyang Green Power (KOSDAQ:282720) Will Want To Turn Around Its Return Trends

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at Kumyang Green Power (KOSDAQ:282720) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for Kumyang Green Power, this is the formula:

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

0.053 = ₩6.1b ÷ (₩185b - ₩70b) (Based on the trailing twelve months to December 2023).

Therefore, Kumyang Green Power has an ROCE of 5.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.2%.

Check out our latest analysis for Kumyang Green Power

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kumyang Green Power's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Kumyang Green Power.

What Can We Tell From Kumyang Green Power's ROCE Trend?

When we looked at the ROCE trend at Kumyang Green Power, we didn't gain much confidence. Over the last one year, returns on capital have decreased to 5.3% from 13% one year ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Kumyang Green Power's ROCE

Bringing it all together, while we're somewhat encouraged by Kumyang Green Power's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 0.5% to shareholders over the last year. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Kumyang Green Power (including 2 which are concerning) .

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.