SG GlobalLtd (KRX:001380) Has More To Do To Multiply In Value Going Forward

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at SG GlobalLtd (KRX:001380) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for SG GlobalLtd, this is the formula:

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

0.045 = ₩7.4b ÷ (₩198b - ₩34b) (Based on the trailing twelve months to March 2024).

So, SG GlobalLtd has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Luxury industry average of 7.3%.

View our latest analysis for SG GlobalLtd

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

So How Is SG GlobalLtd's ROCE Trending?

Things have been pretty stable at SG GlobalLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect SG GlobalLtd to be a multi-bagger going forward.

In Conclusion...

In a nutshell, SG GlobalLtd has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 63% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a separate note, we've found 3 warning signs for SG GlobalLtd you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.