There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Having said that, from a first glance at Hanwha Solutions (KRX:009830) 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?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Hanwha Solutions is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0081 = ₩158b ÷ (₩30t - ₩11t) (Based on the trailing twelve months to June 2025).
Thus, Hanwha Solutions has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.0%.
Check out our latest analysis for Hanwha Solutions
In the above chart we have measured Hanwha Solutions' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hanwha Solutions for free.
What The Trend Of ROCE Can Tell Us
In terms of Hanwha Solutions' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.8% from 4.7% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
What We Can Learn From Hanwha Solutions' ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Hanwha Solutions. And there could be an opportunity here if other metrics look good too, because the stock has declined 35% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
If you'd like to know about the risks facing Hanwha Solutions, we've discovered 1 warning sign that you should be aware of.
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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.