Should We Be Excited About The Trends Of Returns At Cayman Golden Century Wheel Group (KOSDAQ:900280)?

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Cayman Golden Century Wheel Group (KOSDAQ:900280) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Cayman Golden Century Wheel Group:

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

0.13 = ₩31b ÷ (₩270b - ₩28b) (Based on the trailing twelve months to September 2020).

Thus, Cayman Golden Century Wheel Group has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.4% it's much better.

See our latest analysis for Cayman Golden Century Wheel Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cayman Golden Century Wheel Group's ROCE against it's prior returns. If you'd like to look at how Cayman Golden Century Wheel Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trend of ROCE doesn't look fantastic because it's fallen from 38% five years ago, while the business's capital employed increased by 369%. Usually this isn't ideal, but given Cayman Golden Century Wheel Group conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Cayman Golden Century Wheel Group's earnings and if they change as a result from the capital raise.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Cayman Golden Century Wheel Group. These growth trends haven't led to growth returns though, since the stock has fallen 68% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Like most companies, Cayman Golden Century Wheel Group does come with some risks, and we've found 2 warning signs that you should be aware of.

While Cayman Golden Century Wheel Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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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