Returns On Capital At Kangnam Jevisco (KRX:000860) Paint A Concerning Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating Kangnam Jevisco (KRX:000860), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Kangnam Jevisco is:

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

0.0042 = ₩2.7b ÷ (₩712b - ₩69b) (Based on the trailing twelve months to December 2020).

Therefore, Kangnam Jevisco has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.2%.

Check out our latest analysis for Kangnam Jevisco

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kangnam Jevisco's ROCE against it's prior returns. If you'd like to look at how Kangnam Jevisco has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Kangnam Jevisco Tell Us?

When we looked at the ROCE trend at Kangnam Jevisco, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 0.4% from 5.9% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Kangnam Jevisco's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 30% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Kangnam Jevisco does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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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