Should We Be Excited About The Trends Of Returns At Sam-A Aluminium Company (KRX:006110)?

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Sam-A Aluminium Company (KRX:006110) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Sam-A Aluminium Company:

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).

Therefore, Sam-A Aluminium Company has an ROCE of 4.7%. On its own, that's a low figure but it's around the 4.1% average generated by the Metals and Mining industry.

View 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 want to delve into the historical earnings, revenue and cash flow of Sam-A Aluminium Company, check out these free graphs here.

The Trend Of ROCE

Over the past two years, Sam-A Aluminium Company's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're 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 side note, Sam-A Aluminium Company's current liabilities are still rather high at 40% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

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. Yet to long term shareholders the stock has gifted them an incredible 264% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing: We've identified 4 warning signs with Sam-A Aluminium Company (at least 2 which are significant) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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