There Are Reasons To Feel Uneasy About Mcnulty Korea's (KOSDAQ:222980) Returns On Capital

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Mcnulty Korea (KOSDAQ:222980) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is 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. Analysts use this formula to calculate it for Mcnulty Korea:

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

0.064 = ₩3.3b ÷ (₩67b - ₩15b) (Based on the trailing twelve months to December 2020).

Therefore, Mcnulty Korea has an ROCE of 6.4%. On its own, that's a low figure but it's around the 7.3% average generated by the Food industry.

View our latest analysis for Mcnulty Korea

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 Mcnulty Korea, check out these free graphs here.

What Can We Tell From Mcnulty Korea's ROCE Trend?

Unfortunately, the trend isn't great with ROCE falling from 9.8% five years ago, while capital employed has grown 85%. Usually this isn't ideal, but given Mcnulty Korea conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Mcnulty Korea probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Mcnulty Korea. And there could be an opportunity here if other metrics look good too, because the stock has declined 29% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a final note, we found 5 warning signs for Mcnulty Korea (1 can't be ignored) you should be aware of.

While Mcnulty Korea 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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