Returns At Poongsan (KRX:103140) Are On The Way Up

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Poongsan (KRX:103140) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Poongsan, this is the formula:

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

0.085 = ₩198b ÷ (₩3.8t - ₩1.4t) (Based on the trailing twelve months to March 2024).

So, Poongsan has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 6.3%.

View our latest analysis for Poongsan

In the above chart we have measured Poongsan's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Poongsan for free.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.5%. The amount of capital employed has increased too, by 30%. So we're very much inspired by what we're seeing at Poongsan thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Poongsan is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 182% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Poongsan can keep these trends up, it could have a bright future ahead.

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

While Poongsan 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.