Returns On Capital At Sam-A Aluminium Company (KRX:006110) Paint An Interesting Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Sam-A Aluminium Company (KRX:006110) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. The formula for this calculation on Sam-A Aluminium Company is:

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

0.047 = ₩6.0b ÷ (₩212b - ₩85b) (Based on the trailing twelve months to September 2020).

Thus, Sam-A Aluminium Company has an ROCE of 4.7%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 4.1%.

See our latest analysis for Sam-A Aluminium Company

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

So How Is Sam-A Aluminium Company's ROCE Trending?

Things have been pretty stable at Sam-A Aluminium Company, with its capital employed and returns on that capital staying somewhat the same for the last two years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Sam-A Aluminium Company in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a separate but related note, it's important to know that Sam-A Aluminium Company has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Sam-A Aluminium Company's ROCE

We can conclude that in regards to Sam-A Aluminium Company's returns on capital employed and the trends, there isn't much change to report on. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 216% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Sam-A Aluminium Company (of which 2 are a bit unpleasant!) that you should know about.

While Sam-A Aluminium Company 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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