The Returns At Miwon Specialty Chemical (KRX:268280) Provide Us With Signs Of What's To Come

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Miwon Specialty Chemical (KRX:268280), it didn't seem to tick all of these boxes.

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

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. The formula for this calculation on Miwon Specialty Chemical is:

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

0.16 = ₩47b ÷ (₩320b - ₩33b) (Based on the trailing twelve months to September 2020).

Therefore, Miwon Specialty Chemical has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Chemicals industry.

View our latest analysis for Miwon Specialty Chemical

Historical performance is a great place to start when researching a stock so above you can see the gauge for Miwon Specialty Chemical's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Miwon Specialty Chemical, check out these free graphs here.

The Trend Of ROCE

There hasn't been much to report for Miwon Specialty Chemical's returns and its level of capital employed because both metrics have been steady for the past one year. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Miwon Specialty Chemical in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

In summary, Miwon Specialty Chemical isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 88% over the last three 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.

If you want to know some of the risks facing Miwon Specialty Chemical we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

While Miwon Specialty Chemical isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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