Should We Be Excited About The Trends Of Returns At Woorison F&G (KOSDAQ:073560)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Woorison F&G (KOSDAQ:073560) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Woorison F&G, this is the formula:

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

0.065 = ₩18b ÷ (₩422b - ₩147b) (Based on the trailing twelve months to September 2020).

So, Woorison F&G has an ROCE of 6.5%. In absolute terms, that's a low return but it's around the Food industry average of 6.9%.

View our latest analysis for Woorison F&G

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 Woorison F&G, check out these free graphs here.

The Trend Of ROCE

In terms of Woorison F&G's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 21%, but since then they've fallen to 6.5%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Woorison F&G's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly then, the total return to shareholders over the last three years has been flat. 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.

Woorison F&G does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...

While Woorison F&G 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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