Stock Analysis

Korea Export Packaging IndustrialLtd (KRX:002200) Shareholders Will Want The ROCE Trajectory To Continue

KOSE:A002200
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Korea Export Packaging IndustrialLtd's (KRX:002200) returns on capital, so let's have a 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. Analysts use this formula to calculate it for Korea Export Packaging IndustrialLtd:

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

0.04 = ₩11b ÷ (₩309b - ₩39b) (Based on the trailing twelve months to December 2020).

Therefore, Korea Export Packaging IndustrialLtd has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Packaging industry average of 5.5%.

View our latest analysis for Korea Export Packaging IndustrialLtd

roce
KOSE:A002200 Return on Capital Employed April 19th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Korea Export Packaging IndustrialLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Korea Export Packaging IndustrialLtd, check out these free graphs here.

The Trend Of ROCE

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 291% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

In summary, we're delighted to see that Korea Export Packaging IndustrialLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 45% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 3 warning signs for Korea Export Packaging IndustrialLtd you'll probably want to know about.

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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