The Returns On Capital At Bokwang Industry (KOSDAQ:225530) Don't Inspire Confidence

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Bokwang Industry (KOSDAQ:225530) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Bokwang Industry, this is the formula:

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

0.078 = ₩8.2b ÷ (₩128b - ₩23b) (Based on the trailing twelve months to September 2020).

So, Bokwang Industry has an ROCE of 7.8%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 4.5%.

See our latest analysis for Bokwang Industry

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 Bokwang Industry's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Bokwang Industry Tell Us?

When we looked at the ROCE trend at Bokwang Industry, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.8% from 22% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Bokwang Industry's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Bokwang Industry is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 186% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One final note, you should learn about the 2 warning signs we've spotted with Bokwang Industry (including 1 which can't be ignored) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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