We Like These Underlying Trends At Kyung Dong Navien (KRX:009450)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Kyung Dong Navien (KRX:009450) looks quite promising in regards to its trends of return on capital.

What is 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 Kyung Dong Navien, this is the formula:

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

0.18 = ₩69b ÷ (₩727b - ₩343b) (Based on the trailing twelve months to September 2020).

So, Kyung Dong Navien has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 4.0% generated by the Building industry.

See our latest analysis for Kyung Dong Navien

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

So How Is Kyung Dong Navien's ROCE Trending?

Kyung Dong Navien is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 70%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Another thing to note, Kyung Dong Navien has a high ratio of current liabilities to total assets of 47%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Kyung Dong Navien's ROCE

To sum it up, Kyung Dong Navien has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 70% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Kyung Dong Navien does come with some risks, and we've found 2 warning signs that you should be aware of.

While Kyung Dong Navien 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. 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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