Returns On Capital At Wooyang (KOSDAQ:103840) Have Hit The Brakes

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Having said that, from a first glance at Wooyang (KOSDAQ:103840) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Wooyang, this is the formula:

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

0.09 = ₩6.4b ÷ (₩122b - ₩51b) (Based on the trailing twelve months to December 2020).

So, Wooyang has an ROCE of 9.0%. On its own that's a low return, but compared to the average of 7.4% generated by the Food industry, it's much better.

See our latest analysis for Wooyang

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'd like to look at how Wooyang 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

The returns on capital haven't changed much for Wooyang in recent years. Over the past one year, ROCE has remained relatively flat at around 9.0% and the business has deployed 28% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Wooyang's current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

Long story short, while Wooyang has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 57% over the last year, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 3 warning signs for Wooyang (1 doesn't sit too well with us) you should be aware of.

While Wooyang 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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