We Like These Underlying Return On Capital Trends At Hankuk Paper Mfg (KRX:027970)

October 14, 2024

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in Hankuk Paper Mfg's (KRX:027970) returns on capital, so let's have a look.

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 Hankuk Paper Mfg is:

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

0.076 = ₩37b ÷ (₩772b - ₩294b) (Based on the trailing twelve months to June 2024).

Therefore, Hankuk Paper Mfg has an ROCE of 7.6%. In absolute terms, that's a low return, but it's much better than the Forestry industry average of 5.4%.

Check out our latest analysis for Hankuk Paper Mfg

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

The Trend Of ROCE

Hankuk Paper Mfg has not disappointed with their ROCE growth. The figures show that over the last one year, ROCE has grown 185% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

In summary, we're delighted to see that Hankuk Paper Mfg has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 11% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Hankuk Paper Mfg and understanding it should be part of your investment process.

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.

Valuation is complex, but we're here to simplify it.

Discover if Hankuk Paper Mfg might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.