WONIK MaterialsLtd (KOSDAQ:104830) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at WONIK MaterialsLtd (KOSDAQ:104830), it didn't seem to tick all of these boxes.

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. To calculate this metric for WONIK MaterialsLtd, this is the formula:

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

0.092 = ₩42b ÷ (₩504b - ₩49b) (Based on the trailing twelve months to September 2023).

So, WONIK MaterialsLtd has an ROCE of 9.2%. In absolute terms, that's a low return, but it's much better than the Chemicals industry average of 6.2%.

See our latest analysis for WONIK MaterialsLtd

Above you can see how the current ROCE for WONIK MaterialsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for WONIK MaterialsLtd .

So How Is WONIK MaterialsLtd's ROCE Trending?

On the surface, the trend of ROCE at WONIK MaterialsLtd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 9.2% from 15% five years ago. However it looks like WONIK MaterialsLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On WONIK MaterialsLtd's ROCE

Bringing it all together, while we're somewhat encouraged by WONIK MaterialsLtd's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 42% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we've found 2 warning signs for WONIK MaterialsLtd that we think you should be aware of.

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. 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.