Will JC Chemical's (KOSDAQ:137950) Growth In ROCE Persist?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at JC Chemical (KOSDAQ:137950) so let's look a bit deeper.

Understanding 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. To calculate this metric for JC Chemical, this is the formula:

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

0.11 = ₩16b ÷ (₩234b - ₩88b) (Based on the trailing twelve months to September 2020).

Therefore, JC Chemical has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 5.3% it's much better.

Check out our latest analysis for JC Chemical

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of JC Chemical, check out these free graphs here.

So How Is JC Chemical's ROCE Trending?

We like the trends that we're seeing from JC Chemical. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 101%. So we're very much inspired by what we're seeing at JC Chemical thanks to its ability to profitably reinvest capital.

Our Take On JC Chemical's ROCE

In summary, it's great to see that JC Chemical can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 116% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for JC Chemical (of which 1 shouldn't be ignored!) that you should know about.

While JC Chemical 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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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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