Here's What's Concerning About Sungwoo Techron. Co.Ltd's (KOSDAQ:045300) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Sungwoo Techron. Co.Ltd (KOSDAQ:045300), we don't think it's current trends fit the mold of a multi-bagger.

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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 Sungwoo Techron. Co.Ltd is:

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

0.016 = ₩1.2b ÷ (₩99b - ₩24b) (Based on the trailing twelve months to December 2024).

So, Sungwoo Techron. Co.Ltd has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 5.5%.

See our latest analysis for Sungwoo Techron. Co.Ltd

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're interested in investigating Sungwoo Techron. Co.Ltd's past further, check out this free graph covering Sungwoo Techron. Co.Ltd's past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at Sungwoo Techron. Co.Ltd doesn't inspire confidence. Around five years ago the returns on capital were 4.1%, but since then they've fallen to 1.6%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Sungwoo Techron. Co.Ltd is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 0.6% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Sungwoo Techron. Co.Ltd (of which 1 doesn't sit too well with us!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.