JOONGANG ADVANCED MATERIALS (KOSDAQ:051980) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at JOONGANG ADVANCED MATERIALS (KOSDAQ:051980) so let's look a bit deeper.

Understanding 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 JOONGANG ADVANCED MATERIALS is:

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

0.0057 = ₩468m ÷ (₩131b - ₩48b) (Based on the trailing twelve months to December 2023).

So, JOONGANG ADVANCED MATERIALS has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Communications industry average of 5.4%.

View our latest analysis for JOONGANG ADVANCED MATERIALS

Historical performance is a great place to start when researching a stock so above you can see the gauge for JOONGANG ADVANCED MATERIALS' ROCE against it's prior returns. If you're interested in investigating JOONGANG ADVANCED MATERIALS' past further, check out this free graph covering JOONGANG ADVANCED MATERIALS' past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that JOONGANG ADVANCED MATERIALS is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.6% on its capital. And unsurprisingly, like most companies trying to break into the black, JOONGANG ADVANCED MATERIALS is utilizing 428% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On JOONGANG ADVANCED MATERIALS' ROCE

In summary, it's great to see that JOONGANG ADVANCED MATERIALS has managed to break into profitability and is continuing to reinvest in its business. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 29% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about JOONGANG ADVANCED MATERIALS, we've spotted 4 warning signs, and 3 of them are significant.

While JOONGANG ADVANCED MATERIALS 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.