The Returns On Capital At Wing's Foot (KOSDAQ:335870) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after briefly looking over the numbers, we don't think Wing's Foot (KOSDAQ:335870) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Wing's Foot is:

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

0.018 = ₩615m ÷ (₩49b - ₩15b) (Based on the trailing twelve months to June 2025).

Therefore, Wing's Foot has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 15%.

See our latest analysis for Wing's Foot

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Wing's Foot.

What Does the ROCE Trend For Wing's Foot Tell Us?

Unfortunately, the trend isn't great with ROCE falling from 17% five years ago, while capital employed has grown 93%. Usually this isn't ideal, but given Wing's Foot conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Wing's Foot might not have received a full period of earnings contribution from it.

On a related note, Wing's Foot has decreased its current liabilities to 32% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Wing's Foot's ROCE

In summary, we're somewhat concerned by Wing's Foot's diminishing returns on increasing amounts of capital. Investors haven't taken kindly to these developments, since the stock has declined 63% from where it was three years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know about the risks facing Wing's Foot, we've discovered 1 warning sign that you should be aware of.

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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.