Should We Be Excited About The Trends Of Returns At Hyundai Livart Furniture (KRX:079430)?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Hyundai Livart Furniture (KRX:079430), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Hyundai Livart Furniture:

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

0.063 = ₩35b ÷ (₩813b - ₩264b) (Based on the trailing twelve months to September 2020).

So, Hyundai Livart Furniture has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.6%.

View our latest analysis for Hyundai Livart Furniture

Above you can see how the current ROCE for Hyundai Livart Furniture compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Hyundai Livart Furniture here for free.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Hyundai Livart Furniture, we didn't gain much confidence. To be more specific, ROCE has fallen from 12% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Hyundai Livart Furniture'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 Hyundai Livart Furniture. However, despite the promising trends, the stock has fallen 52% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Like most companies, Hyundai Livart Furniture does come with some risks, and we've found 1 warning sign that you should be aware of.

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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