JINSUNG T.E.C (KOSDAQ:036890) May Have Issues Allocating Its Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at JINSUNG T.E.C (KOSDAQ:036890), it didn't seem to tick all of these boxes.

What Is 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. Analysts use this formula to calculate it for JINSUNG T.E.C:

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

0.084 = ₩22b ÷ (₩428b - ₩165b) (Based on the trailing twelve months to September 2024).

Therefore, JINSUNG T.E.C has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 6.6% generated by the Machinery industry, it's much better.

Check out our latest analysis for JINSUNG T.E.C

Historical performance is a great place to start when researching a stock so above you can see the gauge for JINSUNG T.E.C's ROCE against it's prior returns. If you'd like to look at how JINSUNG T.E.C has performed in the past in other metrics, you can view this free graph of JINSUNG T.E.C's past earnings, revenue and cash flow.

So How Is JINSUNG T.E.C's ROCE Trending?

In terms of JINSUNG T.E.C's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 20% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On JINSUNG T.E.C's ROCE

We're a bit apprehensive about JINSUNG T.E.C because despite more capital being deployed in the business, returns on that capital and sales have both fallen. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 62% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a final note, we've found 2 warning signs for JINSUNG T.E.C that we think you should be aware of.

While JINSUNG T.E.C 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.