What Do The Returns At Kolmar Korea Holdings (KRX:024720) Mean Going Forward?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Kolmar Korea Holdings (KRX:024720) looks quite promising in regards to its trends of return on capital.

Understanding 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 Kolmar Korea Holdings:

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

0.14 = ₩117b ÷ (₩1.2t - ₩356b) (Based on the trailing twelve months to June 2020).

So, Kolmar Korea Holdings has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Personal Products industry.

See our latest analysis for Kolmar Korea Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kolmar Korea Holdings' ROCE against it's prior returns. If you'd like to look at how Kolmar Korea Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Kolmar Korea Holdings' ROCE Trend?

Kolmar Korea Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 154% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Kolmar Korea Holdings' ROCE

All in all, it's terrific to see that Kolmar Korea Holdings is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 54% 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.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

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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