The Trends At Hyundai Bioscience (KOSDAQ:048410) That You Should Know About

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Hyundai Bioscience (KOSDAQ:048410) and its ROCE trend, we weren't exactly thrilled.

What is 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. Analysts use this formula to calculate it for Hyundai Bioscience:

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

0.0043 = ₩375m ÷ (₩97b - ₩9.7b) (Based on the trailing twelve months to September 2020).

Thus, Hyundai Bioscience has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 6.8%.

Check out our latest analysis for Hyundai Bioscience

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

So How Is Hyundai Bioscience's ROCE Trending?

We weren't thrilled with the trend because Hyundai Bioscience's ROCE has reduced by 93% over the last five years, while the business employed 254% more capital. Usually this isn't ideal, but given Hyundai Bioscience conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Hyundai Bioscience probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a side note, Hyundai Bioscience has done well to pay down its current liabilities to 10.0% 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.

What We Can Learn From Hyundai Bioscience's ROCE

In summary, we're somewhat concerned by Hyundai Bioscience's diminishing returns on increasing amounts of capital. Yet despite these poor fundamentals, the stock has gained a huge 734% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Like most companies, Hyundai Bioscience does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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