Should You Be Impressed By NOROO Holdings' (KRX:000320) Returns on Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at NOROO Holdings (KRX:000320) 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)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for NOROO Holdings, this is the formula:

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

0.037 = ₩27b ÷ (₩1.1t - ₩326b) (Based on the trailing twelve months to September 2020).

Thus, NOROO Holdings has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.0%.

View our latest analysis for NOROO Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for NOROO Holdings' ROCE against it's prior returns. If you're interested in investigating NOROO Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is NOROO Holdings' ROCE Trending?

Things have been pretty stable at NOROO Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at NOROO Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On NOROO Holdings' ROCE

We can conclude that in regards to NOROO Holdings' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 40% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think NOROO Holdings has the makings of a multi-bagger.

NOROO Holdings does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should 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. 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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