Stock Analysis

What We Make Of Paseco's (KOSDAQ:037070) Returns On Capital

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KOSDAQ:A037070
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There are a few key trends to look for if we want to identify the next multi-bagger. 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. So on that note, Paseco (KOSDAQ:037070) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Paseco is:

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

0.20 = ₩17b ÷ (₩138b - ₩49b) (Based on the trailing twelve months to September 2020).

So, Paseco has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 7.8% it's much better.

View our latest analysis for Paseco

roce
KOSDAQ:A037070 Return on Capital Employed February 5th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Paseco's ROCE against it's prior returns. If you'd like to look at how Paseco has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We like the trends that we're seeing from Paseco. Over the last five years, returns on capital employed have risen substantially to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 30%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

To sum it up, Paseco has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 249% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Paseco looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether A037070 is currently trading for a fair price.

While Paseco 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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About KOSDAQ:A037070

Paseco

Paseco Co. Ltd manufactures and sells water appliances, heaters, and commercial and home appliances primarily in Korea.

Adequate balance sheet with poor track record.

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