Here's What's Concerning About Hanexpress.Co's (KRX:014130) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. However, after briefly looking over the numbers, we don't think Hanexpress.Co (KRX:014130) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Hanexpress.Co:

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

0.019 = ₩3.9b ÷ (₩429b - ₩220b) (Based on the trailing twelve months to March 2024).

So, Hanexpress.Co has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 3.1%.

See our latest analysis for Hanexpress.Co

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hanexpress.Co's ROCE against it's prior returns. If you're interested in investigating Hanexpress.Co's past further, check out this free graph covering Hanexpress.Co's past earnings, revenue and cash flow.

What Can We Tell From Hanexpress.Co's ROCE Trend?

In terms of Hanexpress.Co's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.9% from 8.1% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a separate but related note, it's important to know that Hanexpress.Co has a current liabilities to total assets ratio of 51%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Hanexpress.Co's ROCE

In summary, we're somewhat concerned by Hanexpress.Co's diminishing returns on increasing amounts of capital. It should come as no surprise then that the stock has fallen 37% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 3 warning signs for Hanexpress.Co (2 are significant) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

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