We Like These Underlying Return On Capital Trends At SG GlobalLtd (KRX:001380)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at SG GlobalLtd (KRX:001380) so let's look a bit deeper.

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. The formula for this calculation on SG GlobalLtd is:

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

0.058 = ₩9.7b ÷ (₩197b - ₩29b) (Based on the trailing twelve months to June 2024).

Thus, SG GlobalLtd has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Luxury industry average of 7.3%.

See 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of SG GlobalLtd.

What The Trend Of ROCE Can Tell Us

SG GlobalLtd is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 43% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On SG GlobalLtd's ROCE

To bring it all together, SG GlobalLtd has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 26% 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.

SG GlobalLtd does have some risks, we noticed 3 warning signs (and 1 which is potentially serious) we think you should know about.

While SG GlobalLtd 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.