Should We Be Excited About The Trends Of Returns At Poongsan Holdings (KRX:005810)?

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Poongsan Holdings (KRX:005810) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Poongsan Holdings:

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

0.011 = ₩8.5b ÷ (₩975b - ₩198b) (Based on the trailing twelve months to September 2020).

Therefore, Poongsan Holdings has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 4.1%.

Check out our latest analysis for Poongsan Holdings

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

The Trend Of ROCE

When we looked at the ROCE trend at Poongsan Holdings, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.1% from 6.0% five years ago. However it looks like Poongsan Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Poongsan Holdings' ROCE

To conclude, we've found that Poongsan Holdings is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Poongsan Holdings, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

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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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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