Chinyang Poly UrethaneLtd (KRX:010640) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Chinyang Poly UrethaneLtd (KRX:010640), we don't think it's current trends fit the mold of a multi-bagger.

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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 Chinyang Poly UrethaneLtd is:

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

0.092 = ₩4.6b ÷ (₩58b - ₩8.2b) (Based on the trailing twelve months to September 2024).

Therefore, Chinyang Poly UrethaneLtd has an ROCE of 9.2%. In absolute terms, that's a low return, but it's much better than the Chemicals industry average of 7.5%.

View our latest analysis for Chinyang Poly UrethaneLtd

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

So How Is Chinyang Poly UrethaneLtd's ROCE Trending?

In terms of Chinyang Poly UrethaneLtd's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 9.2% and the business has deployed 61% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, Chinyang Poly UrethaneLtd has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 168% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Chinyang Poly UrethaneLtd does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is significant...

While Chinyang Poly UrethaneLtd 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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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.