Our Take On The Returns On Capital At SamchullyLtd (KRX:004690)

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. 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 investigating SamchullyLtd (KRX:004690), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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 SamchullyLtd:

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

0.023 = ₩73b ÷ (₩3.7t - ₩557b) (Based on the trailing twelve months to September 2020).

Therefore, SamchullyLtd has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Gas Utilities industry average of 3.8%.

View our latest analysis for SamchullyLtd

In the above chart we have measured SamchullyLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering SamchullyLtd here for free.

What The Trend Of ROCE Can Tell Us

Over the past five years, SamchullyLtd's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if SamchullyLtd doesn't end up being a multi-bagger in a few years time. On top of that you'll notice that SamchullyLtd has been paying out a large portion (61%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

In a nutshell, SamchullyLtd has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 4.2% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with SamchullyLtd (including 1 which is a bit unpleasant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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