Here's What To Make Of Pan Ocean's (KRX:028670) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Pan Ocean (KRX:028670) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. The formula for this calculation on Pan Ocean is:

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

0.056 = ₩430b ÷ (₩8.8t - ₩1.2t) (Based on the trailing twelve months to September 2024).

Therefore, Pan Ocean has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 7.7%.

See our latest analysis for Pan Ocean

In the above chart we have measured Pan Ocean's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Pan Ocean .

So How Is Pan Ocean's ROCE Trending?

There are better returns on capital out there than what we're seeing at Pan Ocean. The company has employed 102% more capital in the last five years, and the returns on that capital have remained stable at 5.6%. 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 Pan Ocean's ROCE

As we've seen above, Pan Ocean's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 13% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Pan Ocean has the makings of a multi-bagger.

If you'd like to know about the risks facing Pan Ocean, we've discovered 1 warning sign that you should be aware of.

While Pan Ocean 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.