SeAH Steel Holdings (KRX:003030) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in SeAH Steel Holdings' (KRX:003030) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for SeAH Steel Holdings:

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

0.063 = ₩236b ÷ (₩4.9t - ₩1.2t) (Based on the trailing twelve months to September 2024).

Thus, SeAH Steel Holdings has an ROCE of 6.3%. On its own that's a low return, but compared to the average of 4.4% generated by the Metals and Mining industry, it's much better.

View our latest analysis for SeAH Steel Holdings

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

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 6.3%. 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 115%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On SeAH Steel Holdings' ROCE

To sum it up, SeAH Steel Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 672% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

SeAH Steel Holdings does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While SeAH Steel 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.