Woori Technology (KOSDAQ:032820) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Woori Technology (KOSDAQ:032820) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Woori Technology is:

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

0.04 = ₩2.7b ÷ (₩118b - ₩51b) (Based on the trailing twelve months to December 2020).

Thus, Woori Technology has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Electronic industry average of 5.9%.

See our latest analysis for Woori Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Woori Technology's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Woori Technology, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The fact that Woori Technology is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 4.0% on its capital. Not only that, but the company is utilizing 43% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a separate but related note, it's important to know that Woori Technology has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. 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.

What We Can Learn From Woori Technology's ROCE

Overall, Woori Technology gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 96% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Woori Technology, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While Woori Technology 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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