What Do The Returns On Capital At Hyundai Livart Furniture (KRX:079430) Tell Us?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Hyundai Livart Furniture (KRX:079430), it didn't seem to tick all of these boxes.

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. To calculate this metric for Hyundai Livart Furniture, this is the formula:

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).

Therefore, Hyundai Livart Furniture has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 8.3%.

See our latest analysis for Hyundai Livart Furniture

In the above chart we have measured Hyundai Livart Furniture's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Hyundai Livart Furniture's ROCE Trending?

In terms of Hyundai Livart Furniture's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.3% from 12% five years ago. 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. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From 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 55% 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.

On a final note, we've found 1 warning sign for Hyundai Livart Furniture that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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