What Do The Returns At Okong (KOSDAQ:045060) Mean Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Okong (KOSDAQ:045060) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Okong:

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

0.10 = ₩9.3b ÷ (₩132b - ₩42b) (Based on the trailing twelve months to September 2020).

Therefore, Okong has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Chemicals industry.

See our latest analysis for Okong

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 Okong, check out these free graphs here.

So How Is Okong's ROCE Trending?

We like the trends that we're seeing from Okong. The data shows that returns on capital have increased substantially over the last five years to 10%. The amount of capital employed has increased too, by 31%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 32%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Okong has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Okong's ROCE

All in all, it's terrific to see that Okong is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Okong you'll probably want to know about.

While Okong 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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