If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Jeonjinbio's (KOSDAQ:110020) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Jeonjinbio:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.027 = ₩472m ÷ (₩18b - ₩881m) (Based on the trailing twelve months to June 2025).
Therefore, Jeonjinbio has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 6.8%.
Check out our latest analysis for Jeonjinbio
Historical performance is a great place to start when researching a stock so above you can see the gauge for Jeonjinbio's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jeonjinbio.
The Trend Of ROCE
We're delighted to see that Jeonjinbio is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.7% which is a sight for sore eyes. Not only that, but the company is utilizing 284% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
On a related note, the company's ratio of current liabilities to total assets has decreased to 4.8%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Jeonjinbio has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Key Takeaway
To the delight of most shareholders, Jeonjinbio has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 81% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.
On a separate note, we've found 3 warning signs for Jeonjinbio you'll probably want to know about.
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.