Kook Soon Dang.Co.Ltd (KOSDAQ:043650) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Kook Soon Dang.Co.Ltd's (KOSDAQ:043650) returns on capital, so let's have a look.

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. The formula for this calculation on Kook Soon Dang.Co.Ltd is:

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

0.0098 = ₩2.1b ÷ (₩224b - ₩9.9b) (Based on the trailing twelve months to September 2020).

So, Kook Soon Dang.Co.Ltd has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 8.4%.

See our latest analysis for Kook Soon Dang.Co.Ltd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kook Soon Dang.Co.Ltd's ROCE against it's prior returns. If you'd like to look at how Kook Soon Dang.Co.Ltd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Kook Soon Dang.Co.Ltd's ROCE Trending?

Shareholders will be relieved that Kook Soon Dang.Co.Ltd has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.0%, which is always encouraging. While returns have increased, the amount of capital employed by Kook Soon Dang.Co.Ltd has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line On Kook Soon Dang.Co.Ltd's ROCE

In summary, we're delighted to see that Kook Soon Dang.Co.Ltd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 21% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Kook Soon Dang.Co.Ltd does have some risks though, and we've spotted 3 warning signs for Kook Soon Dang.Co.Ltd that you might be interested in.

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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