What Do The Returns On Capital At KPX HoldingsLtd (KRX:092230) Tell Us?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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)

0.051 = ₩68b ÷ (₩1.6t - ₩229b) (Based on the trailing twelve months to September 2020).

Therefore, KPX HoldingsLtd has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.0%.

See our latest analysis for KPX HoldingsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for KPX HoldingsLtd's ROCE against it's prior returns. 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.

So How Is KPX HoldingsLtd's ROCE Trending?

On the surface, the trend of ROCE at KPX HoldingsLtd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.1% from 6.5% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On KPX HoldingsLtd's ROCE

To conclude, we've found that KPX HoldingsLtd is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 24% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a separate note, we've found 3 warning signs for KPX HoldingsLtd you'll probably want to know about.

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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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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