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Korea Aerospace Industries (KRX:047810) Might Be Having Difficulty Using Its Capital Effectively

Simply Wall St · 06/28 23:02

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Korea Aerospace Industries (KRX:047810) and its ROCE trend, we weren't exactly thrilled.

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What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Korea Aerospace Industries is:

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

0.067 = ₩240b ÷ (₩8.7t - ₩5.2t) (Based on the trailing twelve months to March 2025).

Thus, Korea Aerospace Industries has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Aerospace & Defense industry average of 5.6%.

View our latest analysis for Korea Aerospace Industries

roce
KOSE:A047810 Return on Capital Employed June 28th 2025

Above you can see how the current ROCE for Korea Aerospace Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Korea Aerospace Industries .

The Trend Of ROCE

In terms of Korea Aerospace Industries' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a separate but related note, it's important to know that Korea Aerospace Industries has a current liabilities to total assets ratio of 59%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Korea Aerospace Industries' ROCE

To conclude, we've found that Korea Aerospace Industries is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 292% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Korea Aerospace Industries, we've discovered 2 warning signs that you should be aware of.

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.