We Like These Underlying Return On Capital Trends At Korea Alcohol Industrial (KOSDAQ:017890)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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, Korea Alcohol Industrial (KOSDAQ:017890) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Korea Alcohol Industrial is:

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

0.13 = ₩56b ÷ (₩494b - ₩62b) (Based on the trailing twelve months to December 2020).

So, Korea Alcohol Industrial has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 7.9% it's much better.

View our latest analysis for Korea Alcohol Industrial

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 Korea Alcohol Industrial, check out these free graphs here.

How Are Returns Trending?

Investors would be pleased with what's happening at Korea Alcohol Industrial. Over the last five years, returns on capital employed have risen substantially to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 87%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Korea Alcohol Industrial's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Korea Alcohol Industrial has. Since the stock has returned a staggering 100% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Korea Alcohol Industrial looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether A017890 is currently trading for a fair price.

While Korea Alcohol Industrial 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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