Is Korea Cast Iron Pipe Ind (KRX:000970) Likely To Turn Things Around?

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Korea Cast Iron Pipe Ind (KRX:000970), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 Korea Cast Iron Pipe Ind, this is the formula:

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

0.038 = ₩11b ÷ (₩339b - ₩55b) (Based on the trailing twelve months to September 2020).

Thus, Korea Cast Iron Pipe Ind has an ROCE of 3.8%. Even though it's in line with the industry average of 3.8%, it's still a low return by itself.

Check out our latest analysis for Korea Cast Iron Pipe Ind

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

What Can We Tell From Korea Cast Iron Pipe Ind's ROCE Trend?

On the surface, the trend of ROCE at Korea Cast Iron Pipe Ind doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.8% from 5.0% five years 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.

Our Take On Korea Cast Iron Pipe Ind's ROCE

Bringing it all together, while we're somewhat encouraged by Korea Cast Iron Pipe Ind's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 12% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Korea Cast Iron Pipe Ind does have some risks though, and we've spotted 1 warning sign for Korea Cast Iron Pipe Ind that you might be interested in.

While Korea Cast Iron Pipe Ind 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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