Slowing Rates Of Return At KCTC (KRX:009070) Leave Little Room For Excitement

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at KCTC (KRX:009070) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. The formula for this calculation on KCTC is:

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

0.071 = ₩39b ÷ (₩763b - ₩212b) (Based on the trailing twelve months to December 2024).

So, KCTC has an ROCE of 7.1%. Even though it's in line with the industry average of 7.4%, it's still a low return by itself.

See our latest analysis for KCTC

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

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for KCTC in recent years. The company has consistently earned 7.1% for the last five years, and the capital employed within the business has risen 89% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

Long story short, while KCTC has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 85% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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While KCTC 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. 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.