Shinsung E&GLtd (KRX:011930) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at Shinsung E&GLtd (KRX:011930) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Shinsung E&GLtd is:

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

0.014 = ₩4.7b ÷ (₩572b - ₩245b) (Based on the trailing twelve months to September 2023).

Thus, Shinsung E&GLtd has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 7.2%.

View our latest analysis for Shinsung E&GLtd

In the above chart we have measured Shinsung E&GLtd's 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 analyst report for Shinsung E&GLtd .

What Can We Tell From Shinsung E&GLtd's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 1.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 48% more capital is being employed now too. So we're very much inspired by what we're seeing at Shinsung E&GLtd thanks to its ability to profitably reinvest capital.

Another thing to note, Shinsung E&GLtd has a high ratio of current liabilities to total assets of 43%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Shinsung E&GLtd's ROCE

All in all, it's terrific to see that Shinsung E&GLtd is reaping the rewards from prior investments and is growing its capital base. And a remarkable 108% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Shinsung E&GLtd can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Shinsung E&GLtd that we think you should be aware of.

While Shinsung E&GLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.