Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at HYUNDAI CORPORATION HOLDINGS (KRX:227840) and its trend of ROCE, we really liked what we saw.
What is 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. Analysts use this formula to calculate it for HYUNDAI CORPORATION HOLDINGS:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = ₩10b ÷ (₩226b - ₩15b) (Based on the trailing twelve months to September 2020).
Therefore, HYUNDAI CORPORATION HOLDINGS has an ROCE of 4.9%. In absolute terms, that's a low return, but it's much better than the Consumer Retailing industry average of 4.1%.
Above you can see how the current ROCE for HYUNDAI CORPORATION HOLDINGS compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for HYUNDAI CORPORATION HOLDINGS.
What The Trend Of ROCE Can Tell Us
While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last three years, ROCE has grown 105% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line
In summary, we're delighted to see that HYUNDAI CORPORATION HOLDINGS has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 53% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
Like most companies, HYUNDAI CORPORATION HOLDINGS does come with some risks, and we've found 2 warning signs that you should be aware of.
While HYUNDAI CORPORATION HOLDINGS 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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