Returns At Lotte Chilsung Beverage (KRX:005300) Are On The Way Up

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Lotte Chilsung Beverage (KRX:005300) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Lotte Chilsung Beverage:

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

0.067 = ₩189b ÷ (₩4.3t - ₩1.5t) (Based on the trailing twelve months to June 2024).

So, Lotte Chilsung Beverage has an ROCE of 6.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.2%.

See our latest analysis for Lotte Chilsung Beverage

Above you can see how the current ROCE for Lotte Chilsung Beverage compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Lotte Chilsung Beverage .

What Does the ROCE Trend For Lotte Chilsung Beverage Tell Us?

Lotte Chilsung Beverage has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 36% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To bring it all together, Lotte Chilsung Beverage has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 11% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Lotte Chilsung Beverage does have some risks though, and we've spotted 2 warning signs for Lotte Chilsung Beverage that you might be interested in.

While Lotte Chilsung Beverage 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.