Here's What To Make Of KISCO Holdings' (KRX:001940) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think KISCO Holdings (KRX:001940) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 KISCO Holdings, this is the formula:

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

0.051 = ₩72b ÷ (₩1.6t - ₩125b) (Based on the trailing twelve months to September 2020).

Thus, KISCO Holdings has an ROCE of 5.1%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 4.1%.

Check out our latest analysis for KISCO Holdings

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

How Are Returns Trending?

Things have been pretty stable at KISCO Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at KISCO Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In a nutshell, KISCO Holdings has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 36% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

KISCO Holdings does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

While KISCO Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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