Hankukpackage's (KOSDAQ:037230) Returns Have Hit A Wall

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Hankukpackage (KOSDAQ:037230) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Hankukpackage:

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

0.031 = ₩2.0b ÷ (₩81b - ₩15b) (Based on the trailing twelve months to December 2020).

Thus, Hankukpackage has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Packaging industry average of 5.5%.

See our latest analysis for Hankukpackage

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're interested in investigating Hankukpackage's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Hankukpackage's historical ROCE trend, it doesn't exactly demand attention. The company has employed 76% more capital in the last five years, and the returns on that capital have remained stable at 3.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

Long story short, while Hankukpackage has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 263% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 2 warning signs for Hankukpackage you'll probably want to know about.

While Hankukpackage may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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