Returns On Capital At ORION Holdings (KRX:001800) Paint An Interesting Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at ORION Holdings (KRX:001800), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ORION Holdings is:

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

0.079 = ₩322b ÷ (₩4.5t - ₩448b) (Based on the trailing twelve months to September 2020).

Thus, ORION Holdings has an ROCE of 7.9%. In absolute terms, that's a low return but it's around the Food industry average of 6.9%.

See our latest analysis for ORION Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for ORION Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of ORION Holdings, check out these free graphs here.

So How Is ORION Holdings' ROCE Trending?

In terms of ORION Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 13% over the last five years. However it looks like ORION Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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 side note, ORION Holdings has done well to pay down its current liabilities to 9.9% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. 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...

To conclude, we've found that ORION Holdings is reinvesting in the business, but returns have been falling. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 78% over the last five years. Therefore based on the analysis done in this article, we don't think ORION Holdings has the makings of a multi-bagger.

One final note, you should learn about the 2 warning signs we've spotted with ORION Holdings (including 1 which is a bit concerning) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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