Returns On Capital At CHUNGDAHM Learning (KOSDAQ:096240) Paint An Interesting Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at CHUNGDAHM Learning's (KOSDAQ:096240) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for CHUNGDAHM Learning, this is the formula:

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

0.13 = ₩17b ÷ (₩207b - ₩78b) (Based on the trailing twelve months to September 2020).

Thus, CHUNGDAHM Learning has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 9.8% it's much better.

View our latest analysis for CHUNGDAHM Learning

Above you can see how the current ROCE for CHUNGDAHM Learning compares to its prior returns on capital, but there's only so much you can tell from the past. 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 current returns on capital are decent, they haven't changed much. The company has employed 109% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 38% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On CHUNGDAHM Learning's ROCE

The main thing to remember is that CHUNGDAHM Learning has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 78% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we've found 5 warning signs for CHUNGDAHM Learning that we think 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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