Some Investors May Be Worried About W-Scope Chungju Plant's (KOSDAQ:393890) Returns On Capital

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. However, after investigating W-Scope Chungju Plant (KOSDAQ:393890), we don't think it's current trends fit the mold of a multi-bagger.

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 W-Scope Chungju Plant, this is the formula:

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

0.013 = ₩16b ÷ (₩1.6t - ₩363b) (Based on the trailing twelve months to June 2024).

Thus, W-Scope Chungju Plant has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 8.3%.

Check out our latest analysis for W-Scope Chungju Plant

In the above chart we have measured W-Scope Chungju Plant's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for W-Scope Chungju Plant .

So How Is W-Scope Chungju Plant's ROCE Trending?

When we looked at the ROCE trend at W-Scope Chungju Plant, we didn't gain much confidence. Around three years ago the returns on capital were 5.6%, but since then they've fallen to 1.3%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On W-Scope Chungju Plant's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for W-Scope Chungju Plant. However, despite the promising trends, the stock has fallen 70% over the last year, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we found 2 warning signs for W-Scope Chungju Plant (1 is a bit unpleasant) you should be aware of.

While W-Scope Chungju Plant 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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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.