Stock Analysis

Samsung E&A (KRX:028050) Is Reinvesting To Multiply In Value

KOSE:A028050
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Samsung E&A's (KRX:028050) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Samsung E&A is:

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

0.23 = ₩895b ÷ (₩8.5t - ₩4.6t) (Based on the trailing twelve months to June 2024).

Therefore, Samsung E&A has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 6.4% earned by companies in a similar industry.

View our latest analysis for Samsung E&A

roce
KOSE:A028050 Return on Capital Employed November 20th 2024

Above you can see how the current ROCE for Samsung E&A compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Samsung E&A .

So How Is Samsung E&A's ROCE Trending?

We'd be pretty happy with returns on capital like Samsung E&A. The company has employed 161% more capital in the last five years, and the returns on that capital have remained stable at 23%. Now considering ROCE is an attractive 23%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Samsung E&A can keep this up, we'd be very optimistic about its future.

On a side note, Samsung E&A has done well to reduce current liabilities to 54% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line On Samsung E&A's ROCE

In summary, we're delighted to see that Samsung E&A has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you want to continue researching Samsung E&A, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.