Why We Like The Returns At Samyang Foods (KRX:003230)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Samyang Foods (KRX:003230) we really liked what we saw.

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 Samyang Foods:

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

0.24 = ₩95b ÷ (₩556b - ₩164b) (Based on the trailing twelve months to December 2020).

So, Samyang Foods has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Food industry average of 7.4%.

View our latest analysis for Samyang Foods

Above you can see how the current ROCE for Samyang Foods compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Samyang Foods Tell Us?

Samyang Foods is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 108%. So we're very much inspired by what we're seeing at Samyang Foods thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Samyang Foods has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 302% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Samyang Foods can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Samyang Foods and understanding it should be part of your investment process.

Samyang Foods is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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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