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- KOSE:A004710
Some Investors May Be Worried About Hansol Technics' (KRX:004710) Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Hansol Technics (KRX:004710), we don't think it's current trends fit the mold of a multi-bagger.
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 Hansol Technics is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = ₩32b ÷ (₩956b - ₩314b) (Based on the trailing twelve months to September 2024).
So, Hansol Technics has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 6.4%.
Check out our latest analysis for Hansol Technics
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'd like to look at how Hansol Technics has performed in the past in other metrics, you can view this free graph of Hansol Technics' past earnings, revenue and cash flow.
What Does the ROCE Trend For Hansol Technics Tell Us?
On the surface, the trend of ROCE at Hansol Technics doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.9% from 8.7% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
On a related note, Hansol Technics has decreased its current liabilities to 33% 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.
The Key Takeaway
Bringing it all together, while we're somewhat encouraged by Hansol Technics' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 50% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you want to continue researching Hansol Technics, you might be interested to know about the 2 warning signs that our analysis has discovered.
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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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.
About KOSE:A004710
Hansol Technics
Manufactures and sells electronic components and materials in South Korea and internationally.
Flawless balance sheet and good value.