Are Investors Concerned With What's Going On At Enertork (KOSDAQ:019990)?

When researching a stock for investment, what can tell us that the company is in decline? 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. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within Enertork (KOSDAQ:019990), we weren't too hopeful.

Return On Capital Employed (ROCE): What is it?

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 Enertork:

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

0.016 = ₩636m ÷ (₩43b - ₩2.5b) (Based on the trailing twelve months to June 2020).

Therefore, Enertork has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Electrical industry average of 7.2%.

View our latest analysis for Enertork

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

How Are Returns Trending?

In terms of Enertork's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 6.6% that they were earning four years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Enertork to turn into a multi-bagger.

Our Take On Enertork's ROCE

In summary, it's unfortunate that Enertork is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. 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 3 warning signs for Enertork (of which 1 is potentially serious!) that you should know about.

While Enertork 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. 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.
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