What Do The Returns At Heerim Architects & Planners (KOSDAQ:037440) Mean Going Forward?

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Heerim Architects & Planners (KOSDAQ:037440) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Heerim Architects & Planners, this is the formula:

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

0.093 = ₩6.0b ÷ (₩160b - ₩96b) (Based on the trailing twelve months to June 2020).

So, Heerim Architects & Planners has an ROCE of 9.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.3%.

See our latest analysis for Heerim Architects & Planners

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Heerim Architects & Planners' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Heerim Architects & Planners is reaping rewards from its investments and has now broken into profitability. The company now earns 9.3% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Heerim Architects & Planners has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

Another thing to note, Heerim Architects & Planners has a high ratio of current liabilities to total assets of 60%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

To sum it up, Heerim Architects & Planners is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 13% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 2 warning signs for Heerim Architects & Planners you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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