Kumho Petro ChemicalLtd (KRX:011780) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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 Kumho Petro ChemicalLtd (KRX:011780) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Kumho Petro ChemicalLtd, this is the formula:

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

0.045 = ₩314b ÷ (₩8.4t - ₩1.5t) (Based on the trailing twelve months to March 2025).

So, Kumho Petro ChemicalLtd has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.3%.

See our latest analysis for Kumho Petro ChemicalLtd

Above you can see how the current ROCE for Kumho Petro ChemicalLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kumho Petro ChemicalLtd .

How Are Returns Trending?

When we looked at the ROCE trend at Kumho Petro ChemicalLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 11% over the last five years. 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. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Kumho Petro ChemicalLtd is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 72% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Kumho Petro ChemicalLtd does have some risks though, and we've spotted 2 warning signs for Kumho Petro ChemicalLtd that you might be interested in.

While Kumho Petro ChemicalLtd 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.