The Return Trends At SajodongaoneLtd (KRX:008040) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at SajodongaoneLtd (KRX:008040) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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)

0.071 = ₩17b ÷ (₩446b - ₩214b) (Based on the trailing twelve months to December 2020).

Thus, SajodongaoneLtd has an ROCE of 7.1%. Even though it's in line with the industry average of 7.4%, it's still a low return by itself.

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

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 86% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 48%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On SajodongaoneLtd's ROCE

To sum it up, SajodongaoneLtd 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 27% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about SajodongaoneLtd, we've spotted 2 warning signs, and 1 of them is significant.

While SajodongaoneLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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