YUNSUNG F&CLtd's (KOSDAQ:372170) Returns On Capital Tell Us There Is Reason To Feel Uneasy

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into YUNSUNG F&CLtd (KOSDAQ:372170), we weren't too upbeat about how things were going.

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Understanding Return On Capital Employed (ROCE)

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 YUNSUNG F&CLtd is:

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

0.043 = ₩8.3b ÷ (₩288b - ₩96b) (Based on the trailing twelve months to June 2025).

So, YUNSUNG F&CLtd has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Machinery industry average of 6.5%.

See our latest analysis for YUNSUNG F&CLtd

In the above chart we have measured YUNSUNG F&CLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for YUNSUNG F&CLtd .

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at YUNSUNG F&CLtd. About two years ago, returns on capital were 15%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on YUNSUNG F&CLtd becoming one if things continue as they have.

On a related note, YUNSUNG F&CLtd has decreased its current liabilities to 33% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Key Takeaway

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. Investors haven't taken kindly to these developments, since the stock has declined 32% from where it was year ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

YUNSUNG F&CLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

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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.