What Do The Returns At Shindaeyang Paper (KRX:016590) Mean Going Forward?

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Shindaeyang Paper (KRX:016590) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Shindaeyang Paper:

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).

Thus, Shindaeyang Paper has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 5.2% generated by the Forestry industry.

Check out our latest analysis for Shindaeyang Paper

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

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

The trends we've noticed at Shindaeyang Paper are quite reassuring. The data shows that returns on capital have increased substantially over the last five years 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.

The Bottom Line

In summary, it's great to see that Shindaeyang Paper can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

On a final note, we've found 1 warning sign for Shindaeyang Paper that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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