TaewoongLtd (KOSDAQ:044490) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, TaewoongLtd (KOSDAQ:044490) looks quite promising in regards to its trends of return on capital.

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Understanding 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. To calculate this metric for TaewoongLtd, this is the formula:

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

0.032 = ₩23b ÷ (₩813b - ₩96b) (Based on the trailing twelve months to December 2024).

Therefore, TaewoongLtd has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Machinery industry average of 6.3%.

Check out our latest analysis for TaewoongLtd

Above you can see how the current ROCE for TaewoongLtd 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 TaewoongLtd .

What Does the ROCE Trend For TaewoongLtd Tell Us?

TaewoongLtd has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 3.2% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by TaewoongLtd has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

What We Can Learn From TaewoongLtd's ROCE

To sum it up, TaewoongLtd is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 192% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for A044490 that compares the share price and estimated value.

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.