Be Wary Of Semyung Electric MachineryLtd (KOSDAQ:017510) And Its Returns On Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Semyung Electric MachineryLtd (KOSDAQ:017510), we weren't too upbeat about how things were going.

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 Semyung Electric MachineryLtd is:

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

0.017 = ₩1.4b ÷ (₩83b - ₩2.7b) (Based on the trailing twelve months to December 2023).

Therefore, Semyung Electric MachineryLtd has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Electrical industry average of 8.3%.

Check out our latest analysis for Semyung Electric MachineryLtd

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

What Can We Tell From Semyung Electric MachineryLtd's ROCE Trend?

In terms of Semyung Electric MachineryLtd's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 4.3% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Semyung Electric MachineryLtd becoming one if things continue as they have.

The Bottom Line

In summary, it's unfortunate that Semyung Electric MachineryLtd is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 34% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Semyung Electric MachineryLtd (of which 1 can't be ignored!) that you should know about.

While Semyung Electric MachineryLtd isn't earning the highest return, check out this free list of companies that are 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.