Hyunwoo Industrial (KOSDAQ:092300) Is Reinvesting At Lower Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Hyunwoo Industrial (KOSDAQ:092300), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Hyunwoo Industrial:

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

0.00019 = ₩23m ÷ (₩174b - ₩53b) (Based on the trailing twelve months to December 2020).

So, Hyunwoo Industrial has an ROCE of 0.02%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.9%.

Check out our latest analysis for Hyunwoo Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hyunwoo Industrial's ROCE against it's prior returns. If you'd like to look at how Hyunwoo Industrial has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We weren't thrilled with the trend because Hyunwoo Industrial's ROCE has reduced by 100% over the last three years, while the business employed 39% more capital. That being said, Hyunwoo Industrial raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Hyunwoo Industrial might not have received a full period of earnings contribution from it.

The Bottom Line On Hyunwoo Industrial's ROCE

To conclude, we've found that Hyunwoo Industrial is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 143% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 7 warning signs for Hyunwoo Industrial (of which 3 are a bit concerning!) that you should know about.

While Hyunwoo Industrial isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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