The Returns On Capital At JYP Entertainment (KOSDAQ:035900) Don't Inspire Confidence

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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Looking at JYP Entertainment (KOSDAQ:035900), it does have a high ROCE right now, but lets see how returns are trending.

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Return On Capital Employed (ROCE): What Is It?

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 JYP Entertainment, this is the formula:

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

0.20 = ₩114b ÷ (₩741b - ₩183b) (Based on the trailing twelve months to March 2025).

Thus, JYP Entertainment has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 6.1%.

See our latest analysis for JYP Entertainment

Above you can see how the current ROCE for JYP Entertainment 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 JYP Entertainment for free.

The Trend Of ROCE

In terms of JYP Entertainment's historical ROCE movements, the trend isn't fantastic. Historically returns on capital were even higher at 30%, but they have dropped over the last five years. However it looks like JYP Entertainment might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that JYP Entertainment is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 114% 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.

JYP Entertainment does have some risks though, and we've spotted 1 warning sign for JYP Entertainment that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.