Taeyoung Engineering & ConstructionLtd (KRX:009410) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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 Taeyoung Engineering & ConstructionLtd (KRX:009410) 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. The formula for this calculation on Taeyoung Engineering & ConstructionLtd is:

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

0.13 = ₩251b ÷ (₩3.8t - ₩1.9t) (Based on the trailing twelve months to December 2020).

Therefore, Taeyoung Engineering & ConstructionLtd has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 8.4% it's much better.

Check out our latest analysis for Taeyoung Engineering & ConstructionLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Taeyoung Engineering & ConstructionLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Taeyoung Engineering & ConstructionLtd, check out these free graphs here.

So How Is Taeyoung Engineering & ConstructionLtd's ROCE Trending?

Taeyoung Engineering & ConstructionLtd has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 375% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 51% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Key Takeaway

To bring it all together, Taeyoung Engineering & ConstructionLtd has done well to increase the returns it's generating from its capital employed. And a remarkable 538% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Taeyoung Engineering & ConstructionLtd that you might find interesting.

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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