The Returns On Capital At HanmiGlobal (KRX:053690) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at HanmiGlobal (KRX:053690) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. Analysts use this formula to calculate it for HanmiGlobal:

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

0.095 = ₩31b ÷ (₩425b - ₩103b) (Based on the trailing twelve months to June 2024).

Thus, HanmiGlobal has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Construction industry average of 6.4%.

Check out our latest analysis for HanmiGlobal

In the above chart we have measured HanmiGlobal's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for HanmiGlobal .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at HanmiGlobal, we didn't gain much confidence. Around five years ago the returns on capital were 19%, but since then they've fallen to 9.5%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On HanmiGlobal's ROCE

To conclude, we've found that HanmiGlobal is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 74% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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

While HanmiGlobal isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.