Korea Export Packaging IndustrialLtd (KRX: 002200) Shareholders will want ROCE on track to continue


If we are to find multi-bagger potential, there are often underlying trends that can provide clues. A common approach is to try to find a business with Return on capital employed (ROCE) which is increasing, in parallel with a amount capital employed. This shows us that it is a compounding machine, capable of continually reinvesting its profits into the business and generating higher returns. Speaking of which, we have noticed some big changes in Korea Export Packaging IndustrialLtd’s (KRX: 002200) returns to capital, so let’s take a look.

Understanding Return on Capital Employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for Korea Export Packaging IndustrialLtd:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.04 = â‚© 11b ÷ (â‚© 309b – â‚© 39b) (Based on the last twelve months up to December 2020).

Therefore, Korea Export Packaging IndustrialLtd has a ROCE of 4.0%. In the end, that’s a low return and underperforming the packaging industry average by 5.5%.

Check out our latest review for Korea Export Packaging IndustrialLtd

KOSE: A002200 Return on Capital Employed April 19, 2021

Historical performance is a great starting point when researching a stock, above you can see Korea Export Packaging IndustrialLtd’s ROCE gauge against its previous returns. If you want to delve into the history of profit, revenue and cash flow of Korea Export Packaging IndustrialLtd, check out these free graphics here.

The ROCE trend

While the ROCE isn’t as high as some of the other companies, it’s great to see it’s on the rise. Figures show that over the past five years, ROCE has increased by 291% while using roughly the same amount of capital. Basically, the business generates higher returns from the same amount of capital and this is proof that there are improvements in the efficiency of the business. The company is doing well in this direction, and it is worth considering what the management team has planned for long-term growth prospects.

The bottom line

In summary, we are delighted to see that Korea Export Packaging IndustrialLtd has been able to increase its efficiency and achieve higher rates of return on the same amount of capital. Given that the stock has returned a solid 45% to shareholders over the past five years, it’s fair to say that investors are starting to recognize these changes. That being said, we still believe that promising fundamentals mean the company deserves additional due diligence.

On a separate note, we found 3 warning signs for Korea Export Packaging IndustrialLtd you will probably want to know.

If you want to look for strong businesses with significant income, check out this free list of companies with good balance sheets and impressive returns on equity

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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