There's Been No Shortage Of Growth Recently For HD Hyundai Heavy IndustriesLtd's (KRX:329180) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at HD Hyundai Heavy IndustriesLtd (KRX:329180) and its 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. To calculate this metric for HD Hyundai Heavy IndustriesLtd, this is the formula:

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

0.051 = ₩368b ÷ (₩18t - ₩10t) (Based on the trailing twelve months to June 2024).

Therefore, HD Hyundai Heavy IndustriesLtd has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 6.4%.

Check out our latest analysis for HD Hyundai Heavy IndustriesLtd

Above you can see how the current ROCE for HD Hyundai Heavy IndustriesLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering HD Hyundai Heavy IndustriesLtd for free.

So How Is HD Hyundai Heavy IndustriesLtd's ROCE Trending?

HD Hyundai Heavy IndustriesLtd has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses three years ago, but has managed to turn it around and as we saw earlier is now earning 5.1%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 59% of the business, which is more than it was three years ago. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To sum it up, HD Hyundai Heavy IndustriesLtd is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 70% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for A329180 on our platform that is definitely worth checking out.

While HD Hyundai Heavy IndustriesLtd 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.