Chinyang Poly UrethaneLtd (KRX:010640) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, we've noticed some promising trends at Chinyang Poly UrethaneLtd (KRX:010640) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Chinyang Poly UrethaneLtd:

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

0.061 = ₩2.2b ÷ (₩45b - ₩8.2b) (Based on the trailing twelve months to December 2020).

Thus, Chinyang Poly UrethaneLtd has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.9%.

See our latest analysis for Chinyang Poly UrethaneLtd

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'd like to look at how Chinyang Poly UrethaneLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Chinyang Poly UrethaneLtd's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last two years, returns on capital employed have risen substantially to 6.1%. The amount of capital employed has increased too, by 66%. So we're very much inspired by what we're seeing at Chinyang Poly UrethaneLtd thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Chinyang Poly UrethaneLtd's ROCE

All in all, it's terrific to see that Chinyang Poly UrethaneLtd is reaping the rewards from prior investments and is growing its capital base. And a remarkable 109% total return over the last three years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 2 warning signs for Chinyang Poly UrethaneLtd that we think 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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