We're Watching These Trends At Taekyung Chemical (KRX:006890)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Taekyung Chemical (KRX:006890) and its ROCE trend, we weren't exactly thrilled.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Taekyung Chemical, this is the formula:

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

0.045 = ₩5.7b ÷ (₩133b - ₩7.6b) (Based on the trailing twelve months to September 2020).

Therefore, Taekyung Chemical has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.1%.

View our latest analysis for Taekyung Chemical

Historical performance is a great place to start when researching a stock so above you can see the gauge for Taekyung Chemical's ROCE against it's prior returns. If you'd like to look at how Taekyung Chemical has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at Taekyung Chemical, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Taekyung Chemical doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

We can conclude that in regards to Taekyung Chemical'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 180% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing to note, we've identified 3 warning signs with Taekyung Chemical and understanding them should be part of your investment process.

While Taekyung Chemical 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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