We Like These Underlying Return On Capital Trends At Soosan Heavy Industries (KRX:017550)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at Soosan Heavy Industries (KRX:017550) and its trend of ROCE, we really liked what we saw.

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 Soosan Heavy Industries, this is the formula:

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

0.065 = ₩12b ÷ (₩252b - ₩65b) (Based on the trailing twelve months to September 2024).

So, Soosan Heavy Industries has an ROCE of 6.5%. Even though it's in line with the industry average of 6.5%, it's still a low return by itself.

Check out 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?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 21% more capital is being employed now too. So we're very much inspired by what we're seeing at Soosan Heavy Industries thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Soosan Heavy Industries is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing to note, we've identified 1 warning sign with Soosan Heavy Industries and understanding this should be part of your investment process.

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.