Returns On Capital At Seoul Broadcasting System (KRX:034120) Paint An Interesting Picture

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Seoul Broadcasting System (KRX:034120) 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 Seoul Broadcasting System:

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

0.07 = ₩63b ÷ (₩1.2t - ₩302b) (Based on the trailing twelve months to September 2020).

Thus, Seoul Broadcasting System has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Media industry average of 9.3%.

See our latest analysis for Seoul Broadcasting System

Above you can see how the current ROCE for Seoul Broadcasting System compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Seoul Broadcasting System.

The Trend Of ROCE

The returns on capital haven't changed much for Seoul Broadcasting System in recent years. Over the past five years, ROCE has remained relatively flat at around 7.0% and the business has deployed 30% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

Long story short, while Seoul Broadcasting System has been reinvesting its capital, the returns that it's generating haven't increased. And in the last five years, the stock has given away 36% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Seoul Broadcasting System (of which 1 can't be ignored!) that you should know about.

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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