Returns On Capital At BYC (KRX:001460) Paint An Interesting Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Having said that, from a first glance at BYC (KRX:001460) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 BYC, this is the formula:

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

0.04 = ₩23b ÷ (₩706b - ₩135b) (Based on the trailing twelve months to September 2020).

So, BYC has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Luxury industry average of 7.4%.

See our latest analysis for BYC

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

What Does the ROCE Trend For BYC Tell Us?

There hasn't been much to report for BYC's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if BYC doesn't end up being a multi-bagger in a few years time.

The Bottom Line On BYC's ROCE

In a nutshell, BYC has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 37% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for BYC (of which 1 is concerning!) that you should know about.

While BYC isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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