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

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.0%.

Check out our latest analysis for Taekyung Chemical

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Taekyung Chemical, check out these free graphs here.

How Are Returns Trending?

Over the past five years, Taekyung Chemical's ROCE and capital employed have both remained mostly flat. 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.

What We Can Learn From Taekyung Chemical's ROCE

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. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 120% 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.

If you'd like to know about the risks facing Taekyung Chemical, we've discovered 3 warning signs that you should be aware of.

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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