Soosan Heavy Industries (KRX:017550) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Soosan Heavy Industries' (KRX:017550) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Soosan Heavy Industries is:

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

0.066 = ₩12b ÷ (₩269b - ₩84b) (Based on the trailing twelve months to March 2024).

So, Soosan Heavy Industries has an ROCE of 6.6%. On its own, that's a low figure but it's around the 6.3% average generated by the Machinery industry.

See our latest analysis for Soosan Heavy Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Soosan Heavy Industries' ROCE against it's prior returns. If you're interested in investigating Soosan Heavy Industries' past further, check out this free graph covering Soosan Heavy Industries' past earnings, revenue and cash flow.

So How Is Soosan Heavy Industries' ROCE Trending?

Soosan Heavy Industries has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 472% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Soosan Heavy Industries' ROCE

To bring it all together, Soosan Heavy Industries has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 66% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Soosan Heavy Industries can keep these trends up, it could have a bright future ahead.

Like most companies, Soosan Heavy Industries does come with some risks, and we've found 1 warning sign 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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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.

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