Be Wary Of Seoho ElectricLtd (KOSDAQ:065710) And Its Returns On Capital

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. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Seoho ElectricLtd (KOSDAQ:065710), we weren't too upbeat about how things were going.

We've discovered 3 warning signs about Seoho ElectricLtd. View them for free.

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. The formula for this calculation on Seoho ElectricLtd is:

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

0.018 = ₩1.6b ÷ (₩102b - ₩11b) (Based on the trailing twelve months to December 2024).

So, Seoho ElectricLtd has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Electrical industry average of 7.2%.

Check out our latest analysis for Seoho ElectricLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Seoho ElectricLtd's ROCE against it's prior returns. If you're interested in investigating Seoho ElectricLtd's past further, check out this free graph covering Seoho ElectricLtd's past earnings, revenue and cash flow.

So How Is Seoho ElectricLtd's ROCE Trending?

In terms of Seoho ElectricLtd's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 16%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 Seoho ElectricLtd to turn into a multi-bagger.

Our Take On Seoho ElectricLtd's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 87% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

One final note, you should learn about the 3 warning signs we've spotted with Seoho ElectricLtd (including 2 which don't sit too well with us) .

While Seoho ElectricLtd 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.