What trends should we look for it we want to identify stocks that can 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. Having said that, from a first glance at SajodongaoneLtd (KRX:008040) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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 SajodongaoneLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = ₩22b ÷ (₩488b - ₩237b) (Based on the trailing twelve months to September 2023).
Therefore, SajodongaoneLtd has an ROCE of 8.9%. In absolute terms, that's a low return, but it's much better than the Food industry average of 7.1%.
View our latest analysis for SajodongaoneLtd
Historical performance is a great place to start when researching a stock so above you can see the gauge for SajodongaoneLtd's ROCE against it's prior returns. If you're interested in investigating SajodongaoneLtd's past further, check out this free graph covering SajodongaoneLtd's past earnings, revenue and cash flow.
What Can We Tell From SajodongaoneLtd's ROCE Trend?
In terms of SajodongaoneLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 21% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
On a related note, SajodongaoneLtd has decreased its current liabilities to 49% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Keep in mind 49% is still pretty high, so those risks are still somewhat prevalent.
The Bottom Line
In summary, despite lower returns in the short term, we're encouraged to see that SajodongaoneLtd is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 11% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
If you want to know some of the risks facing SajodongaoneLtd we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About KOSE:A008040
Good value with acceptable track record.
