The Returns On Capital At SEOHAN Const. & Eng.co.Ltd (KOSDAQ:011370) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 investigating SEOHAN Const. & Eng.co.Ltd (KOSDAQ:011370), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on SEOHAN Const. & Eng.co.Ltd is:

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

0.041 = ₩33b ÷ (₩1.2t - ₩429b) (Based on the trailing twelve months to September 2024).

So, SEOHAN Const. & Eng.co.Ltd has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Construction industry average of 6.6%.

See our latest analysis for SEOHAN Const. & Eng.co.Ltd

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

So How Is SEOHAN Const. & Eng.co.Ltd's ROCE Trending?

When we looked at the ROCE trend at SEOHAN Const. & Eng.co.Ltd, we didn't gain much confidence. To be more specific, ROCE has fallen from 5.3% over the last two years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, SEOHAN Const. & Eng.co.Ltd has done well to pay down its current liabilities to 35% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

While returns have fallen for SEOHAN Const. & Eng.co.Ltd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 16% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 5 warning signs with SEOHAN Const. & Eng.co.Ltd (at least 2 which are concerning) , and understanding these would certainly be useful.

While SEOHAN Const. & Eng.co.Ltd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.