We Like These Underlying Trends At Taeyoung Engineering & ConstructionLtd (KRX:009410)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.20 = ₩402b ÷ (₩3.8t - ₩1.7t) (Based on the trailing twelve months to September 2020).

Therefore, Taeyoung Engineering & ConstructionLtd has an ROCE of 20%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Construction industry.

See 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.

How Are Returns Trending?

Taeyoung Engineering & ConstructionLtd has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 996% in that same time. 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 46% 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

As discussed above, Taeyoung Engineering & ConstructionLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 696% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Taeyoung Engineering & ConstructionLtd, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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