In This Article:
Today we are going to look at Korshynov Mining Plant Public Joint Stock Company (MCX:KOGK) to see whether it might be an attractive investment prospect. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.
First of all, we'll work out how to calculate ROCE. Then we'll compare its ROCE to similar companies. Last but not least, we'll look at what impact its current liabilities have on its ROCE.
What is Return On Capital Employed (ROCE)?
ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. All else being equal, a better business will have a higher ROCE. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.
How Do You Calculate Return On Capital Employed?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Korshynov Mining Plant:
0.067 = ₽2.6b ÷ (₽42b - ₽2.4b) (Based on the trailing twelve months to June 2019.)
Therefore, Korshynov Mining Plant has an ROCE of 6.7%.
View our latest analysis for Korshynov Mining Plant
Is Korshynov Mining Plant's ROCE Good?
When making comparisons between similar businesses, investors may find ROCE useful. Using our data, Korshynov Mining Plant's ROCE appears to be significantly below the 9.2% average in the Metals and Mining industry. This could be seen as a negative, as it suggests some competitors may be employing their capital more efficiently. Regardless of how Korshynov Mining Plant stacks up against its industry, its ROCE in absolute terms is quite low (especially compared to a bank account). There are potentially more appealing investments elsewhere.
Korshynov Mining Plant reported an ROCE of 6.7% -- better than 3 years ago, when the company didn't make a profit. This makes us wonder if the company is improving. The image below shows how Korshynov Mining Plant's ROCE compares to its industry, and you can click it to see more detail on its past growth.
Remember that this metric is backwards looking - it shows what has happened in the past, and does not accurately predict the future. Companies in cyclical industries can be difficult to understand using ROCE, as returns typically look high during boom times, and low during busts. ROCE is, after all, simply a snap shot of a single year. Given the industry it operates in, Korshynov Mining Plant could be considered cyclical. How cyclical is Korshynov Mining Plant? You can see for yourself by looking at this free graph of past earnings, revenue and cash flow.