The Returns At Korea Electric Power Industrial Development (KRX:130660) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after briefly looking over the numbers, we don't think Korea Electric Power Industrial Development (KRX:130660) 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)

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

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

0.16 = ₩21b ÷ (₩176b - ₩48b) (Based on the trailing twelve months to September 2020).

So, Korea Electric Power Industrial Development has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 4.7% generated by the Electric Utilities industry.

View 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 past earnings, revenue and cash flow.

The Trend Of ROCE

Over the past five years, Korea Electric Power Industrial Development's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Korea Electric Power Industrial Development to be a multi-bagger going forward.

The Bottom Line On Korea Electric Power Industrial Development's ROCE

We can conclude that in regards to Korea Electric Power Industrial Development's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 39% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Korea Electric Power Industrial Development (of which 2 are significant!) that you should know about.

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. 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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