Is NongShim HoldingsLtd (KRX:072710) A Future Multi-bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in NongShim HoldingsLtd's (KRX:072710) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on NongShim HoldingsLtd is:

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

0.062 = ₩62b ÷ (₩1.3t - ₩277b) (Based on the trailing twelve months to June 2020).

So, NongShim HoldingsLtd has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.8%.

See our latest analysis for NongShim HoldingsLtd

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'd like to look at how NongShim HoldingsLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

NongShim HoldingsLtd's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 45% over the last five years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On NongShim HoldingsLtd's ROCE

In summary, we're delighted to see that NongShim HoldingsLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 45% 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.

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

While NongShim HoldingsLtd 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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