Investors Will Want Lake Materials' (KOSDAQ:281740) Growth In ROCE To Persist

Simply Wall St · 10/14 23:36

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Lake Materials (KOSDAQ:281740) so let's look a bit deeper.

What Is 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 Lake Materials is:

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

0.11 = ₩23b ÷ (₩343b - ₩125b) (Based on the trailing twelve months to June 2024).

Therefore, Lake Materials has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 7.1% it's much better.

View our latest analysis for Lake Materials

roce
KOSDAQ:A281740 Return on Capital Employed October 14th 2024

Above you can see how the current ROCE for Lake Materials compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Lake Materials for free.

What Does the ROCE Trend For Lake Materials Tell Us?

The trends we've noticed at Lake Materials are quite reassuring. Over the last four years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 321%. So we're very much inspired by what we're seeing at Lake Materials thanks to its ability to profitably reinvest capital.

The Bottom Line On Lake Materials' ROCE

In summary, it's great to see that Lake Materials can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 3 warning signs with Lake Materials (at least 2 which are concerning) , and understanding them would certainly be useful.

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.