Will Hansol Chemical's (KRX:014680) Growth In ROCE Persist?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 Hansol Chemical (KRX:014680) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Hansol Chemical, this is the formula:

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

0.18 = ₩145b ÷ (₩956b - ₩169b) (Based on the trailing twelve months to September 2020).

Therefore, Hansol Chemical has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Chemicals industry.

Check out our latest analysis for Hansol Chemical

In the above chart we have measured Hansol Chemical's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hansol Chemical.

So How Is Hansol Chemical's ROCE Trending?

Investors would be pleased with what's happening at Hansol Chemical. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 87%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Hansol Chemical's ROCE

All in all, it's terrific to see that Hansol Chemical is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 359% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Hansol Chemical can keep these trends up, it could have a bright future ahead.

If you want to continue researching Hansol Chemical, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Hansol Chemical 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. 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.
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