The Returns At Wonik Ips (KOSDAQ:240810) Provide Us With Signs Of What's To Come

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Wonik Ips (KOSDAQ:240810) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Wonik Ips:

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

0.11 = ₩66b ÷ (₩1.2t - ₩614b) (Based on the trailing twelve months to June 2020).

Therefore, Wonik Ips has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.5% generated by the Semiconductor industry.

Check out our latest analysis for Wonik Ips

In the above chart we have measured Wonik Ips' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Wonik Ips.

What Can We Tell From Wonik Ips' ROCE Trend?

On the surface, the trend of ROCE at Wonik Ips doesn't inspire confidence. Around three years ago the returns on capital were 35%, but since then they've fallen to 11%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Wonik Ips' current liabilities have increased over the last three years to 50% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

Our Take On Wonik Ips' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Wonik Ips is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 13% over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Wonik Ips could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Wonik Ips 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. 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.
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