Investors Will Want Korea Engineering Consultants' (KRX:023350) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Korea Engineering Consultants (KRX:023350) and its trend of ROCE, we really liked what we saw.

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What Is 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. The formula for this calculation on Korea Engineering Consultants is:

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

0.0045 = ₩902m ÷ (₩418b - ₩218b) (Based on the trailing twelve months to December 2024).

Thus, Korea Engineering Consultants has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 5.1%.

Check out our latest analysis for Korea Engineering Consultants

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

What Does the ROCE Trend For Korea Engineering Consultants Tell Us?

Korea Engineering Consultants has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Korea Engineering Consultants is utilizing 30% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, Korea Engineering Consultants' current liabilities are still rather high at 52% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

Overall, Korea Engineering Consultants gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with a respectable 57% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Korea Engineering Consultants can keep these trends up, it could have a bright future ahead.

If you want to continue researching Korea Engineering Consultants, you might be interested to know about the 3 warning signs that our analysis has discovered.

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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.