We Like These Underlying Return On Capital Trends At Sunjin Beauty ScienceLtd (KOSDAQ:086710)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Sunjin Beauty ScienceLtd's (KOSDAQ:086710) returns on capital, so let's have a look.

We've discovered 2 warning signs about Sunjin Beauty ScienceLtd. View them for free.

Return On Capital Employed (ROCE): What Is It?

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 Sunjin Beauty ScienceLtd is:

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

0.094 = ₩11b ÷ (₩154b - ₩41b) (Based on the trailing twelve months to December 2024).

Thus, Sunjin Beauty ScienceLtd has an ROCE of 9.4%. On its own that's a low return, but compared to the average of 7.1% generated by the Chemicals industry, it's much better.

View our latest analysis for Sunjin Beauty ScienceLtd

Above you can see how the current ROCE for Sunjin Beauty ScienceLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Sunjin Beauty ScienceLtd for free.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.4%. 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 84%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, Sunjin Beauty ScienceLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 92% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Sunjin Beauty ScienceLtd does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Sunjin Beauty ScienceLtd 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.