Returns On Capital At Hyundai Energy SolutionsLtd (KRX:322000) Paint An Interesting Picture

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Hyundai Energy SolutionsLtd (KRX:322000) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Hyundai Energy SolutionsLtd:

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

0.044 = ₩15b ÷ (₩433b - ₩94b) (Based on the trailing twelve months to September 2020).

Therefore, Hyundai Energy SolutionsLtd has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.8%.

See our latest analysis for Hyundai Energy SolutionsLtd

Above you can see how the current ROCE for Hyundai Energy SolutionsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hyundai Energy SolutionsLtd.

How Are Returns Trending?

Things have been pretty stable at Hyundai Energy SolutionsLtd, with its capital employed and returns on that capital staying somewhat the same for the last . Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Hyundai Energy SolutionsLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Hyundai Energy SolutionsLtd's ROCE

In a nutshell, Hyundai Energy SolutionsLtd has been trudging along with the same returns from the same amount of capital over the last . Although the market must be expecting these trends to improve because the stock has gained 76% over the last year. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 2 warning signs for Hyundai Energy SolutionsLtd (1 is significant) you should be aware of.

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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