The Trend Of High Returns At JYP Entertainment (KOSDAQ:035900) Has Us Very Interested

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at the ROCE trend of JYP Entertainment (KOSDAQ:035900) we really liked what we saw.

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. Analysts use this formula to calculate it for JYP Entertainment:

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

0.41 = ₩169b ÷ (₩572b - ₩154b) (Based on the trailing twelve months to December 2023).

Thus, JYP Entertainment has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 7.4% earned by companies in a similar industry.

Check out our latest analysis for JYP Entertainment

In the above chart we have measured JYP Entertainment'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 JYP Entertainment for free.

What Can We Tell From JYP Entertainment's ROCE Trend?

We like the trends that we're seeing from JYP Entertainment. Over the last five years, returns on capital employed have risen substantially to 41%. The amount of capital employed has increased too, by 224%. So we're very much inspired by what we're seeing at JYP Entertainment thanks to its ability to profitably reinvest capital.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what JYP Entertainment has. And a remarkable 137% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While JYP Entertainment looks impressive, no company is worth an infinite price. The intrinsic value infographic for A035900 helps visualize whether it is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.