Shindaeyang Paper (KRX:016590) Is Looking To Continue Growing Its Returns On Capital

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Shindaeyang Paper (KRX:016590) 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. The formula for this calculation on Shindaeyang Paper is:

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

0.10 = ₩73b ÷ (₩815b - ₩121b) (Based on the trailing twelve months to September 2020).

Therefore, Shindaeyang Paper has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 4.6% generated by the Forestry industry.

See our latest analysis for Shindaeyang Paper

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 want to delve into the historical earnings, revenue and cash flow of Shindaeyang Paper, check out these free graphs here.

What Can We Tell From Shindaeyang Paper's ROCE Trend?

Shindaeyang Paper is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 114%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Shindaeyang Paper is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 239% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

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

While Shindaeyang Paper 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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