AK Holdings (KRX:006840) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at AK Holdings (KRX:006840) and its trend of ROCE, we really liked what we saw.

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Understanding 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. To calculate this metric for AK Holdings, this is the formula:

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

0.0038 = ₩9.1b ÷ (₩5.6t - ₩3.2t) (Based on the trailing twelve months to March 2025).

So, AK Holdings has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 3.9%.

Check out our latest analysis for AK Holdings

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

How Are Returns Trending?

Shareholders will be relieved that AK Holdings has broken into profitability. The company now earns 0.4% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 57% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Key Takeaway

To sum it up, AK Holdings is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 42% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

AK Holdings does have some risks though, and we've spotted 2 warning signs for AK Holdings that you might be interested in.

While AK Holdings 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. 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.