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

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at NongShim HoldingsLtd (KRX:072710) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for NongShim HoldingsLtd:

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

0.066 = ₩67b ÷ (₩1.3t - ₩258b) (Based on the trailing twelve months to September 2020).

Therefore, NongShim HoldingsLtd has an ROCE of 6.6%. Even though it's in line with the industry average of 6.9%, it's still a low return by itself.

View our latest analysis for NongShim HoldingsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for NongShim HoldingsLtd's ROCE against it's prior returns. If you're interested in investigating NongShim HoldingsLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For NongShim HoldingsLtd Tell Us?

NongShim HoldingsLtd's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 28% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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.

Our Take 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. Astute investors may have an opportunity here because the stock has declined 41% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing NongShim HoldingsLtd, we've discovered 1 warning sign that you should be aware of.

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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