SAMWHA CAPACITORLTD (KRX:001820) Could Be Struggling To Allocate Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at SAMWHA CAPACITORLTD (KRX:001820) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on SAMWHA CAPACITORLTD is:

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

0.094 = ₩24b ÷ (₩321b - ₩64b) (Based on the trailing twelve months to March 2024).

Therefore, SAMWHA CAPACITORLTD has an ROCE of 9.4%. On its own that's a low return, but compared to the average of 6.9% generated by the Electronic industry, it's much better.

See our latest analysis for SAMWHA CAPACITORLTD

Above you can see how the current ROCE for SAMWHA CAPACITORLTD compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for SAMWHA CAPACITORLTD .

What Can We Tell From SAMWHA CAPACITORLTD's ROCE Trend?

On the surface, the trend of ROCE at SAMWHA CAPACITORLTD doesn't inspire confidence. To be more specific, ROCE has fallen from 58% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, SAMWHA CAPACITORLTD has done well to pay down its current liabilities to 20% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From SAMWHA CAPACITORLTD's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for SAMWHA CAPACITORLTD. In light of this, the stock has only gained 1.6% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

SAMWHA CAPACITORLTD does have some risks though, and we've spotted 1 warning sign for SAMWHA CAPACITORLTD that you might be interested in.

While SAMWHA CAPACITORLTD 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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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.

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