Why The 28% Return On Capital At Hyundai Rotem (KRX:064350) Should Have Your Attention
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Hyundai Rotem's (KRX:064350) returns on capital, so let's have a look.
Understanding 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 Hyundai Rotem is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = ₩900b ÷ (₩6.5t - ₩3.2t) (Based on the trailing twelve months to September 2025).
Therefore, Hyundai Rotem has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 7.1% earned by companies in a similar industry.
Check out our latest analysis for Hyundai Rotem
Above you can see how the current ROCE for Hyundai Rotem 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 Hyundai Rotem .
What Can We Tell From Hyundai Rotem's ROCE Trend?
Hyundai Rotem has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 28% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Hyundai Rotem is utilizing 77% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
On a side note, Hyundai Rotem's current liabilities are still rather high at 50% of total assets. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
Our Take On Hyundai Rotem's ROCE
In summary, it's great to see that Hyundai Rotem has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 983% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for A064350 that compares the share price and estimated value.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.