Investors Will Want LG Energy Solution's (KRX:373220) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 LG Energy Solution (KRX:373220) and its trend of ROCE, we really liked what we saw.

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

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. The formula for this calculation on LG Energy Solution is:

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

0.02 = ₩1.0t ÷ (₩67t - ₩16t) (Based on the trailing twelve months to September 2025).

So, LG Energy Solution has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Electrical industry average of 10.0%.

See our latest analysis for LG Energy Solution

Above you can see how the current ROCE for LG Energy Solution 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 LG Energy Solution .

The Trend Of ROCE

We're delighted to see that LG Energy Solution is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses four years ago, but now it's earning 2.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, LG Energy Solution is utilizing 263% more capital than it was four 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 related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

To the delight of most shareholders, LG Energy Solution has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 10% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

LG Energy Solution does have some risks though, and we've spotted 2 warning signs for LG Energy Solution that you might be interested in.

While LG Energy Solution may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.