Here's What To Make Of Kolon Mobility Group's (KRX:450140) Decelerating Rates Of Return

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. However, after investigating Kolon Mobility Group (KRX:450140), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Kolon Mobility Group is:

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

0.067 = ₩29b ÷ (₩881b - ₩443b) (Based on the trailing twelve months to March 2024).

So, Kolon Mobility Group has an ROCE of 6.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.7%.

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're interested in investigating Kolon Mobility Group's past further, check out this free graph covering Kolon Mobility Group's past earnings, revenue and cash flow.

So How Is Kolon Mobility Group's ROCE Trending?

Over the past , Kolon Mobility Group's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Kolon Mobility Group doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that Kolon Mobility Group has a current liabilities to total assets ratio of 50%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In summary, Kolon Mobility Group isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 35% over the last year, investors may not be too optimistic on this trend improving either. 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.

On a final note, we found 2 warning signs for Kolon Mobility Group (1 is significant) you should be aware of.

While Kolon Mobility Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.