Should You Be Impressed By Hansol Paper's (KRX:213500) Returns on Capital?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So, when we ran our eye over Hansol Paper's (KRX:213500) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Hansol Paper is:

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

0.11 = ₩127b ÷ (₩1.7t - ₩593b) (Based on the trailing twelve months to September 2020).

Thus, Hansol Paper has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 5.2% it's much better.

Check out our latest analysis for Hansol Paper

Above you can see how the current ROCE for Hansol Paper compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Hansol Paper Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last four years, and the capital employed within the business has risen 32% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Hansol Paper has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

The main thing to remember is that Hansol Paper has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 23% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Hansol Paper does have some risks, we noticed 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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