Investors Could Be Concerned With Korea Electric Power Industrial Development's (KRX:130660) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Korea Electric Power Industrial Development (KRX:130660) 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Korea Electric Power Industrial Development is:

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

0.10 = ₩16b ÷ (₩219b - ₩55b) (Based on the trailing twelve months to June 2025).

Therefore, Korea Electric Power Industrial Development has an ROCE of 10.0%. On its own that's a low return, but compared to the average of 6.0% generated by the Electric Utilities industry, it's much better.

See our latest analysis for Korea Electric Power Industrial Development

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

What Does the ROCE Trend For Korea Electric Power Industrial Development Tell Us?

In terms of Korea Electric Power Industrial Development's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 10.0% from 18% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Korea Electric Power Industrial Development is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 263% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing to note, we've identified 2 warning signs with Korea Electric Power Industrial Development and understanding them should be part of your investment process.

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. 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.