Iljin Power (KOSDAQ:094820) Might Be Having Difficulty Using Its Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after briefly looking over the numbers, we don't think Iljin Power (KOSDAQ:094820) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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. The formula for this calculation on Iljin Power is:

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

0.063 = ₩16b ÷ (₩304b - ₩46b) (Based on the trailing twelve months to September 2025).

So, Iljin Power has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.1% average generated by the Machinery industry.

See our latest analysis for Iljin Power

Historical performance is a great place to start when researching a stock so above you can see the gauge for Iljin Power's ROCE against it's prior returns. If you'd like to look at how Iljin Power has performed in the past in other metrics, you can view this free graph of Iljin Power's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Iljin Power, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.3% from 13% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Iljin Power is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 174% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

One final note, you should learn about the 4 warning signs we've spotted with Iljin Power (including 2 which are a bit concerning) .

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.