What Can The Trends At Kook Soon Dang.Co.Ltd (KOSDAQ:043650) Tell Us About Their Returns?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Kook Soon Dang.Co.Ltd (KOSDAQ:043650) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Kook Soon Dang.Co.Ltd, this is the formula:

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).

Therefore, Kook Soon Dang.Co.Ltd has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Beverage industry average of 8.2%.

Check out 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.

The Trend Of ROCE

Kook Soon Dang.Co.Ltd has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.0% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Bottom Line

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. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Kook Soon Dang.Co.Ltd does come with some risks, and we've found 4 warning signs that you should be aware of.

While Kook Soon Dang.Co.Ltd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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