Can WINPAC (KOSDAQ:097800) Continue To Grow Its Returns On Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at WINPAC (KOSDAQ:097800) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 WINPAC:

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

0.14 = ₩11b ÷ (₩132b - ₩53b) (Based on the trailing twelve months to June 2020).

So, WINPAC has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 9.0% it's much better.

Check out our latest analysis for WINPAC

Historical performance is a great place to start when researching a stock so above you can see the gauge for WINPAC's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of WINPAC, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at WINPAC. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 86% more capital is being employed now too. So we're very much inspired by what we're seeing at WINPAC thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 40%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On WINPAC's ROCE

All in all, it's terrific to see that WINPAC is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing WINPAC we've found 3 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

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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