Returns On Capital Are Showing Encouraging Signs At Shinhwa Contech (KOSDAQ:187270)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Shinhwa Contech's (KOSDAQ:187270) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Shinhwa Contech, this is the formula:

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

0.11 = ₩8.1b ÷ (₩103b - ₩31b) (Based on the trailing twelve months to March 2025).

Therefore, Shinhwa Contech has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Electronic industry.

See our latest analysis for Shinhwa Contech

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

So How Is Shinhwa Contech's ROCE Trending?

We're delighted to see that Shinhwa Contech is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 11% on its capital. While returns have increased, the amount of capital employed by Shinhwa Contech has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Shinhwa Contech's ROCE

As discussed above, Shinhwa Contech appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 63% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

On a separate note, we've found 1 warning sign for Shinhwa Contech you'll probably want to know about.

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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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.