Returns On Capital At COWAY (KRX:021240) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Having said that, while the ROCE is currently high for COWAY (KRX:021240), we aren't jumping out of our chairs because returns are decreasing.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on COWAY is:

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

0.21 = ₩844b ÷ (₩6.3t - ₩2.2t) (Based on the trailing twelve months to June 2025).

Thus, COWAY has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 8.1%.

See our latest analysis for COWAY

In the above chart we have measured COWAY's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering COWAY for free.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at COWAY doesn't inspire confidence. While it's comforting that the ROCE is high, five years ago it was 32%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, COWAY has decreased its current liabilities to 35% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On COWAY's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for COWAY. Furthermore the stock has climbed 41% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you'd like to know more about COWAY, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.