Michang Oil Ind .Co.Ltd's (KRX:003650) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Michang Oil Ind .Co.Ltd (KRX:003650) so let's look a bit deeper.

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

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 Michang Oil Ind .Co.Ltd:

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

0.066 = ₩19b ÷ (₩312b - ₩27b) (Based on the trailing twelve months to December 2020).

Therefore, Michang Oil Ind .Co.Ltd has an ROCE of 6.6%. On its own that's a low return, but compared to the average of 4.7% generated by the Oil and Gas industry, it's much better.

View our latest analysis for Michang Oil Ind .Co.Ltd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Michang Oil Ind .Co.Ltd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Michang Oil Ind .Co.Ltd, check out these free graphs here.

The Trend Of ROCE

Michang Oil Ind .Co.Ltd is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 31% over the last two years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Michang Oil Ind .Co.Ltd's ROCE

To bring it all together, Michang Oil Ind .Co.Ltd has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 2.3% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Michang Oil Ind .Co.Ltd, we've discovered 1 warning sign that 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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