The Returns At HYUNDAI BIOLANDLtd (KOSDAQ:052260) Provide Us With Signs Of What's To Come

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at HYUNDAI BIOLANDLtd (KOSDAQ:052260) and its ROCE trend, we weren't exactly thrilled.

What is 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 HYUNDAI BIOLANDLtd:

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

0.044 = ₩8.0b ÷ (₩209b - ₩28b) (Based on the trailing twelve months to September 2020).

So, HYUNDAI BIOLANDLtd has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 6.8%.

View our latest analysis for HYUNDAI BIOLANDLtd

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 HYUNDAI BIOLANDLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For HYUNDAI BIOLANDLtd Tell Us?

When we looked at the ROCE trend at HYUNDAI BIOLANDLtd, we didn't gain much confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 4.4%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On HYUNDAI BIOLANDLtd's ROCE

We're a bit apprehensive about HYUNDAI BIOLANDLtd because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for HYUNDAI BIOLANDLtd (of which 1 shouldn't be ignored!) that you should know about.

While HYUNDAI BIOLANDLtd 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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