Wooree BioLtd (KOSDAQ:082850) Could Be Struggling To Allocate Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 briefly looking over the numbers, we don't think Wooree BioLtd (KOSDAQ:082850) 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)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Wooree BioLtd is:

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

0.046 = ₩15b ÷ (₩610b - ₩281b) (Based on the trailing twelve months to December 2024).

Therefore, Wooree BioLtd has an ROCE of 4.6%. Even though it's in line with the industry average of 5.4%, it's still a low return by itself.

Check out our latest analysis for Wooree BioLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wooree BioLtd's ROCE against it's prior returns. If you're interested in investigating Wooree BioLtd's past further, check out this free graph covering Wooree BioLtd's past earnings, revenue and cash flow.

So How Is Wooree BioLtd's ROCE Trending?

On the surface, the trend of ROCE at Wooree BioLtd doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 4.6%. However it looks like Wooree BioLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Wooree BioLtd has done well to pay down its current liabilities to 46% 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. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Either way, they're still at a pretty high level, so we'd like to see them fall further if possible.

In Conclusion...

To conclude, we've found that Wooree BioLtd is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 135% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Wooree BioLtd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

While Wooree BioLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.