Returns On Capital At CHUNGDAHM Learning (KOSDAQ:096240) Have Stalled

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of CHUNGDAHM Learning (KOSDAQ:096240) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for CHUNGDAHM Learning:

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

0.13 = ₩17b ÷ (₩210b - ₩77b) (Based on the trailing twelve months to December 2020).

Therefore, CHUNGDAHM Learning has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Services industry.

Check out our latest analysis for CHUNGDAHM Learning

In the above chart we have measured CHUNGDAHM Learning'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.

What Can We Tell From CHUNGDAHM Learning's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 113% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that CHUNGDAHM Learning has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, CHUNGDAHM Learning has done well to reduce current liabilities to 37% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In the end, CHUNGDAHM Learning has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 129% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 3 warning signs for CHUNGDAHM Learning 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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