What Do The Returns On Capital At CHOSUN WELDING POHANG (KRX:120030) Tell Us?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at CHOSUN WELDING POHANG (KRX:120030) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for CHOSUN WELDING POHANG:

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

0.12 = ₩14b ÷ (₩126b - ₩8.2b) (Based on the trailing twelve months to September 2020).

So, CHOSUN WELDING POHANG has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 4.1% generated by the Metals and Mining industry.

See our latest analysis for CHOSUN WELDING POHANG

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 CHOSUN WELDING POHANG has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From CHOSUN WELDING POHANG's ROCE Trend?

In terms of CHOSUN WELDING POHANG's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 12% from 23% five years ago. However it looks like CHOSUN WELDING POHANG might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

The Bottom Line On CHOSUN WELDING POHANG's ROCE

To conclude, we've found that CHOSUN WELDING POHANG is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 75% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

CHOSUN WELDING POHANG does have some risks though, and we've spotted 1 warning sign for CHOSUN WELDING POHANG that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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