Returns At LG Uplus (KRX:032640) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at LG Uplus (KRX:032640) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on LG Uplus is:

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

0.069 = ₩998b ÷ (₩20t - ₩5.6t) (Based on the trailing twelve months to December 2023).

Thus, LG Uplus has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Telecom industry average of 6.0%.

Check out our latest analysis for LG Uplus

In the above chart we have measured LG Uplus' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for LG Uplus .

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for LG Uplus in recent years. Over the past five years, ROCE has remained relatively flat at around 6.9% and the business has deployed 43% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From LG Uplus' ROCE

In conclusion, LG Uplus has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 15% in the last five years. Therefore based on the analysis done in this article, we don't think LG Uplus has the makings of a multi-bagger.

One more thing to note, we've identified 2 warning signs with LG Uplus and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.