What Can The Trends At Kyungin Synthetic (KRX:012610) Tell Us About Their Returns?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Kyungin Synthetic (KRX:012610) and its trend of ROCE, we really liked what we saw.

What is 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 Kyungin Synthetic, this is the formula:

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

0.032 = ₩9.7b ÷ (₩519b - ₩218b) (Based on the trailing twelve months to September 2020).

Therefore, Kyungin Synthetic has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.0%.

View our latest analysis for Kyungin Synthetic

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kyungin Synthetic's ROCE against it's prior returns. If you're interested in investigating Kyungin Synthetic's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Kyungin Synthetic's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 3.2%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at Kyungin Synthetic thanks to its ability to profitably reinvest capital.

On a side note, Kyungin Synthetic's current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Kyungin Synthetic has. And a remarkable 132% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Kyungin Synthetic (of which 1 is potentially serious!) that you should know about.

While Kyungin Synthetic 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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