Is Sewoon Medical (KOSDAQ:100700) Likely To Turn Things Around?

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Sewoon Medical's (KOSDAQ:100700) trend of ROCE, we liked what we saw.

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. To calculate this metric for Sewoon Medical, this is the formula:

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

0.13 = ₩14b ÷ (₩110b - ₩5.2b) (Based on the trailing twelve months to September 2020).

Therefore, Sewoon Medical has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

See our latest analysis for Sewoon Medical

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

What Does the ROCE Trend For Sewoon Medical Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 60% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Sewoon Medical has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 4.8% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

The main thing to remember is that Sewoon Medical has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 30% return to shareholders who held over that period. So to determine if Sewoon Medical is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you want to continue researching Sewoon Medical, you might be interested to know about the 2 warning signs that our analysis has discovered.

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. 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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