Is Miwon Holdings (KRX:107590) Likely To Turn Things Around?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Miwon Holdings (KRX:107590) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Miwon Holdings:

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

0.069 = ₩19b ÷ (₩342b - ₩62b) (Based on the trailing twelve months to September 2020).

So, Miwon Holdings has an ROCE of 6.9%. On its own, that's a low figure but it's around the 8.0% average generated by the Chemicals industry.

Check out our latest analysis for Miwon Holdings

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

What Can We Tell From Miwon Holdings' ROCE Trend?

In terms of Miwon Holdings' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.9% from 18% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

While returns have fallen for Miwon Holdings in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 2,017% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Miwon Holdings does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

While Miwon Holdings 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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