Taihan Cable & Solution (KRX:001440) May Have Issues Allocating Its Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Taihan Cable & Solution (KRX:001440), it didn't seem to tick all of these boxes.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Taihan Cable & Solution is:

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

0.062 = ₩105b ÷ (₩2.9t - ₩1.3t) (Based on the trailing twelve months to June 2025).

Thus, Taihan Cable & Solution has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Electrical industry average of 9.6%.

See our latest analysis for Taihan Cable & Solution

Above you can see how the current ROCE for Taihan Cable & Solution compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Taihan Cable & Solution .

So How Is Taihan Cable & Solution's ROCE Trending?

We weren't thrilled with the trend because Taihan Cable & Solution's ROCE has reduced by 65% over the last five years, while the business employed 367% more capital. That being said, Taihan Cable & Solution raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Taihan Cable & Solution might not have received a full period of earnings contribution from it. Additionally, we found that Taihan Cable & Solution's most recent EBIT figure is around the same as the prior year, so we'd attribute the drop in ROCE mostly to the capital raise.

On a related note, Taihan Cable & Solution has decreased its current liabilities to 43% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Keep in mind 43% is still pretty high, so those risks are still somewhat prevalent.

The Bottom Line On Taihan Cable & Solution's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Taihan Cable & Solution is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 250% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a final note, we've found 1 warning sign for Taihan Cable & Solution that we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.