Here's What's Concerning About LS Marine Solution's (KOSDAQ:060370) Returns On Capital

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at LS Marine Solution (KOSDAQ:060370) and its ROCE trend, we weren't exactly thrilled.

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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 LS Marine Solution:

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

0.059 = ₩12b ÷ (₩254b - ₩44b) (Based on the trailing twelve months to December 2024).

Thus, LS Marine Solution has an ROCE of 5.9%. On its own, that's a low figure but it's around the 5.3% average generated by the Construction industry.

See our latest analysis for LS Marine Solution

Above you can see how the current ROCE for LS Marine Solution compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering LS Marine Solution for free.

The Trend Of ROCE

We weren't thrilled with the trend because LS Marine Solution's ROCE has reduced by 45% over the last one year, while the business employed 71% more capital. Usually this isn't ideal, but given LS Marine Solution conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with LS Marine Solution's earnings and if they change as a result from the capital raise. Additionally, we found that LS Marine Solution's most recent EBIT figure is around the same as the prior year, so we'd attribute the drop in ROCE mostly to the capital raise.

In Conclusion...

While returns have fallen for LS Marine Solution in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 414% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

LS Marine Solution does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is significant...

While LS Marine Solution 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.