What We Make Of Sajo Oyang's (KRX:006090) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Sajo Oyang (KRX:006090) and its trend of ROCE, we really liked what we saw.

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 Sajo Oyang:

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

0.14 = ₩29b ÷ (₩324b - ₩118b) (Based on the trailing twelve months to September 2020).

Therefore, Sajo Oyang has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Food industry.

See our latest analysis for Sajo Oyang

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 want to delve into the historical earnings, revenue and cash flow of Sajo Oyang, check out these free graphs here.

So How Is Sajo Oyang's ROCE Trending?

Sajo Oyang is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 28%. So we're very much inspired by what we're seeing at Sajo Oyang thanks to its ability to profitably reinvest capital.

What We Can Learn From Sajo Oyang's ROCE

To sum it up, Sajo Oyang has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 34% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 2 warning signs for Sajo Oyang that we think you should be aware of.

While Sajo Oyang 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. 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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