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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Wing Yip Food Holdings Group (KOSDAQ:900340) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Wing Yip Food Holdings Group:

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

0.12 = ₩27b ÷ (₩242b - ₩27b) (Based on the trailing twelve months to March 2024).

Thus, Wing Yip Food Holdings Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.1% generated by the Food industry.

View our latest analysis for Wing Yip Food Holdings Group

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 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.

What Can We Tell From Wing Yip Food Holdings Group's ROCE Trend?

We weren't thrilled with the trend because Wing Yip Food Holdings Group's ROCE has reduced by 55% over the last five years, while the business employed 130% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Wing Yip Food Holdings Group's earnings and if they change as a result from the capital raise.

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. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On Wing Yip Food Holdings Group's ROCE

In summary, Wing Yip Food Holdings Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 18% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Wing Yip Food Holdings Group (of which 1 makes us a bit uncomfortable!) that you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com