Our Take On The Returns On Capital At Michang Oil Ind .Co.Ltd (KRX:003650)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Michang Oil Ind .Co.Ltd (KRX:003650) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Michang Oil Ind .Co.Ltd, this is the formula:

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

0.073 = ₩20b ÷ (₩300b - ₩25b) (Based on the trailing twelve months to September 2020).

Therefore, Michang Oil Ind .Co.Ltd has an ROCE of 7.3%. In absolute terms, that's a low return, but it's much better than the Oil and Gas industry average of 5.3%.

Check out 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

Over the past one year, Michang Oil Ind .Co.Ltd's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Michang Oil Ind .Co.Ltd to be a multi-bagger going forward.

Our Take On Michang Oil Ind .Co.Ltd's ROCE

In a nutshell, Michang Oil Ind .Co.Ltd has been trudging along with the same returns from the same amount of capital over the last one year. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 3 warning signs for Michang Oil Ind .Co.Ltd (1 is a bit concerning) 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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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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