Our Take On The Returns On Capital At Yoosung T&S (KOSDAQ:024800)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Yoosung T&S (KOSDAQ:024800) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Yoosung T&S is:

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

0.016 = ₩4.4b ÷ (₩441b - ₩160b) (Based on the trailing twelve months to September 2020).

Therefore, Yoosung T&S has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 4.0%.

View our latest analysis for Yoosung T&S

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yoosung T&S' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Yoosung T&S, check out these free graphs here.

So How Is Yoosung T&S' ROCE Trending?

We weren't thrilled with the trend because Yoosung T&S' ROCE has reduced by 77% over the last five years, while the business employed 65% more capital. That being said, Yoosung T&S 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 Yoosung T&S might not have received a full period of earnings contribution from it.

On a related note, Yoosung T&S has decreased its current liabilities to 36% 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. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Yoosung T&S' ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Yoosung T&S have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 26% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Yoosung T&S does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Yoosung T&S 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. 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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