Returns On Capital At Wing Yip Food Holdings Group (KOSDAQ:900340) Paint A Concerning Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 investigating Wing Yip Food Holdings Group (KOSDAQ:900340), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Wing Yip Food Holdings Group is:

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

0.11 = ₩23b ÷ (₩232b - ₩27b) (Based on the trailing twelve months to September 2023).

Thus, Wing Yip Food Holdings Group has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.9% it's much better.

See our latest analysis for Wing Yip Food Holdings Group

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

So How Is Wing Yip Food Holdings Group's ROCE Trending?

When we looked at the ROCE trend at Wing Yip Food Holdings Group, we didn't gain much confidence. Around five years ago the returns on capital were 41%, but since then they've fallen to 11%. 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Wing Yip Food Holdings Group has decreased its current liabilities to 11% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Wing Yip Food Holdings Group's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 64% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Wing Yip Food Holdings Group does have some risks though, and we've spotted 1 warning sign for Wing Yip Food Holdings Group that you might be interested in.

While Wing Yip Food Holdings Group 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.