Here's What To Make Of Shin Heung Energy & ElectronicsLtd's (KOSDAQ:243840) Decelerating Rates Of Return

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at Shin Heung Energy & ElectronicsLtd (KOSDAQ:243840) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Shin Heung Energy & ElectronicsLtd is:

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

0.077 = ₩43b ÷ (₩858b - ₩294b) (Based on the trailing twelve months to June 2024).

So, Shin Heung Energy & ElectronicsLtd has an ROCE of 7.7%. Even though it's in line with the industry average of 8.3%, it's still a low return by itself.

See our latest analysis for Shin Heung Energy & ElectronicsLtd

Above you can see how the current ROCE for Shin Heung Energy & ElectronicsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Shin Heung Energy & ElectronicsLtd .

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Shin Heung Energy & ElectronicsLtd. Over the past five years, ROCE has remained relatively flat at around 7.7% and the business has deployed 183% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

As we've seen above, Shin Heung Energy & ElectronicsLtd's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 21% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Shin Heung Energy & ElectronicsLtd that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.