Be Wary Of Kolon Mobility Group (KRX:450140) And Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Kolon Mobility Group (KRX:450140) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. Analysts use this formula to calculate it for Kolon Mobility Group:

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

0.042 = ₩23b ÷ (₩976b - ₩427b) (Based on the trailing twelve months to June 2025).

Thus, Kolon Mobility Group has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 15%.

View our latest analysis for Kolon Mobility Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kolon Mobility Group's ROCE against it's prior returns. If you'd like to look at how Kolon Mobility Group has performed in the past in other metrics, you can view this free graph of Kolon Mobility Group's past earnings, revenue and cash flow.

So How Is Kolon Mobility Group's ROCE Trending?

On the surface, the trend of ROCE at Kolon Mobility Group doesn't inspire confidence. To be more specific, ROCE has fallen from 7.6% over the last one year. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Kolon Mobility Group has done well to pay down its current liabilities to 44% of total assets. That could partly explain why the ROCE has dropped. 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. Keep in mind 44% is still pretty high, so those risks are still somewhat prevalent.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Kolon Mobility Group's reinvestment in its own business, we're aware that returns are shrinking. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 340% gain to shareholders who have held over the last year. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we found 3 warning signs for Kolon Mobility Group (2 make us uncomfortable) you should be aware of.

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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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.