There Are Reasons To Feel Uneasy About Samsung SDSLtd's (KRX:018260) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. In light of that, when we looked at Samsung SDSLtd (KRX:018260) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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 Samsung SDSLtd:

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

0.085 = ₩911b ÷ (₩13t - ₩2.5t) (Based on the trailing twelve months to December 2024).

So, Samsung SDSLtd has an ROCE of 8.5%. Even though it's in line with the industry average of 7.8%, it's still a low return by itself.

View our latest analysis for Samsung SDSLtd

In the above chart we have measured Samsung SDSLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Samsung SDSLtd .

The Trend Of ROCE

In terms of Samsung SDSLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 8.5% from 14% 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

In summary, Samsung SDSLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 15% in the last five years. Therefore based on the analysis done in this article, we don't think Samsung SDSLtd has the makings of a multi-bagger.

If you're still interested in Samsung SDSLtd it's worth checking out our FREE intrinsic value approximation for A018260 to see if it's trading at an attractive price in other respects.

While Samsung SDSLtd 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.