Slowing Rates Of Return At KPX HoldingsLtd (KRX:092230) Leave Little Room For Excitement

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at KPX HoldingsLtd (KRX:092230), it didn't seem to tick all of these boxes.

What is 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. The formula for this calculation on KPX HoldingsLtd is:

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

0.055 = ₩79b ÷ (₩1.7t - ₩253b) (Based on the trailing twelve months to December 2020).

Thus, KPX HoldingsLtd has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.9%.

Check out our latest analysis for KPX HoldingsLtd

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'd like to look at how KPX HoldingsLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at KPX HoldingsLtd. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 5.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On KPX HoldingsLtd's ROCE

Long story short, while KPX HoldingsLtd has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 39% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Like most companies, KPX HoldingsLtd does come with some risks, and we've found 3 warning signs that you should be aware of.

While KPX HoldingsLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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