Sungchang Enterprise Holdings' (KRX:000180) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So on that note, Sungchang Enterprise Holdings (KRX:000180) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Sungchang Enterprise Holdings, this is the formula:

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

0.013 = ₩8.0b ÷ (₩707b - ₩89b) (Based on the trailing twelve months to December 2020).

Thus, Sungchang Enterprise Holdings has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 5.5%.

View our latest analysis for Sungchang Enterprise Holdings

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'd like to look at how Sungchang Enterprise Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

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 data shows that returns on capital have increased substantially over the last five years to 1.3%. 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 99%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Sungchang Enterprise Holdings is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 26% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 2 warning signs for Sungchang Enterprise Holdings (1 shouldn't be ignored) you should be aware of.

While Sungchang Enterprise Holdings 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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