Hwang Kum Steel & Technology (KRX:032560) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Hwang Kum Steel & Technology's (KRX:032560) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Hwang Kum Steel & Technology:

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

0.07 = ₩24b ÷ (₩461b - ₩122b) (Based on the trailing twelve months to December 2020).

Therefore, Hwang Kum Steel & Technology has an ROCE of 7.0%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 4.7%.

See our latest analysis for Hwang Kum Steel & Technology

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're interested in investigating Hwang Kum Steel & Technology's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Hwang Kum Steel & Technology's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.0%. 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 70%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Hwang Kum Steel & Technology's ROCE

To sum it up, Hwang Kum Steel & Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 56% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Hwang Kum Steel & Technology, we've spotted 2 warning signs, and 1 of them is potentially serious.

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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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