Returns On Capital At Pan Ocean (KRX:028670) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Pan Ocean (KRX:028670), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Pan Ocean:

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

0.053 = ₩371b ÷ (₩8.3t - ₩1.3t) (Based on the trailing twelve months to March 2024).

Thus, Pan Ocean has an ROCE of 5.3%. In absolute terms, that's a low return but it's around the Shipping industry average of 6.5%.

View our latest analysis for Pan Ocean

Above you can see how the current ROCE for Pan Ocean compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Pan Ocean .

The Trend Of ROCE

The returns on capital haven't changed much for Pan Ocean in recent years. The company has consistently earned 5.3% for the last five years, and the capital employed within the business has risen 104% 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.

Our Take On 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. Unsurprisingly, the stock has only gained 5.4% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing to note, we've identified 3 warning signs with Pan Ocean and understanding these should be part of your investment process.

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.