Hwasung Industrial (KRX:002460) Is Doing The Right Things To Multiply Its Share Price

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at Hwasung Industrial (KRX:002460) so let's look a bit deeper.

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 Hwasung Industrial, this is the formula:

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

0.091 = ₩40b ÷ (₩580b - ₩136b) (Based on the trailing twelve months to December 2020).

Therefore, Hwasung Industrial has an ROCE of 9.1%. On its own, that's a low figure but it's around the 8.4% average generated by the Construction industry.

View our latest analysis for Hwasung Industrial

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

What Does the ROCE Trend For Hwasung Industrial Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.1%. The amount of capital employed has increased too, by 22%. So we're very much inspired by what we're seeing at Hwasung Industrial thanks to its ability to profitably reinvest capital.

What We Can Learn From Hwasung Industrial's ROCE

All in all, it's terrific to see that Hwasung Industrial is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 17% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing: We've identified 4 warning signs with Hwasung Industrial (at least 1 which is concerning) , and understanding them would certainly be useful.

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. 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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