Nasdaq
华尔街日报Hankook Steel (KRX:025890) Is Experiencing Growth In Returns On Capital
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, we've noticed some promising trends at Hankook Steel (KRX:025890) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Hankook Steel:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.032 = ₩1.1b ÷ (₩40b - ₩6.0b) (Based on the trailing twelve months to September 2025).
Therefore, Hankook Steel has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 4.4%.
View our latest analysis for Hankook Steel
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Hankook Steel's past further, check out this free graph covering Hankook Steel's past earnings, revenue and cash flow.
What Can We Tell From Hankook Steel's ROCE Trend?
We're delighted to see that Hankook Steel is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.2%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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. Because in the end, a business can only get so efficient.
On a related note, the company's ratio of current liabilities to total assets has decreased to 15%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Bottom Line On Hankook Steel's ROCE
To sum it up, Hankook Steel is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 42% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know about the risks facing Hankook Steel, we've discovered 2 warning signs that you should be aware of.
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.