KEPCO Plant Service & EngineeringLtd's (KRX:051600) Returns Have Hit A Wall

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at KEPCO Plant Service & EngineeringLtd's (KRX:051600) ROCE trend, we were pretty happy with what we saw.

What Is 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 KEPCO Plant Service & EngineeringLtd:

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

0.16 = ₩197b ÷ (₩1.7t - ₩474b) (Based on the trailing twelve months to March 2024).

So, KEPCO Plant Service & EngineeringLtd has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Commercial Services industry.

View our latest analysis for KEPCO Plant Service & EngineeringLtd

In the above chart we have measured KEPCO Plant Service & EngineeringLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for KEPCO Plant Service & EngineeringLtd .

What Does the ROCE Trend For KEPCO Plant Service & EngineeringLtd Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 28% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that KEPCO Plant Service & EngineeringLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On KEPCO Plant Service & EngineeringLtd's ROCE

To sum it up, KEPCO Plant Service & EngineeringLtd has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 43% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing to note, we've identified 1 warning sign with KEPCO Plant Service & EngineeringLtd and understanding this should be part of your investment process.

While KEPCO Plant Service & EngineeringLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com