Our Take On The Returns On Capital At Taekyung Industry.Co (KRX:015890)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. However, after briefly looking over the numbers, we don't think Taekyung Industry.Co (KRX:015890) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on Taekyung Industry.Co is:

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

0.017 = ₩6.8b ÷ (₩548b - ₩135b) (Based on the trailing twelve months to September 2020).

Thus, Taekyung Industry.Co has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.0%.

Check out our latest analysis for Taekyung Industry.Co

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

So How Is Taekyung Industry.Co's ROCE Trending?

In terms of Taekyung Industry.Co's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.7% from 3.5% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

In summary, we're somewhat concerned by Taekyung Industry.Co's diminishing returns on increasing amounts of capital. However the stock has delivered a 42% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Like most companies, Taekyung Industry.Co does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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