W-Scope Chungju Plant (KOSDAQ:393890) Will Be Hoping To Turn Its Returns On Capital Around

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, W-Scope Chungju Plant (KOSDAQ:393890) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on W-Scope Chungju Plant is:

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

0.041 = ₩46b ÷ (₩1.4t - ₩239b) (Based on the trailing twelve months to December 2023).

Therefore, W-Scope Chungju Plant has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Electrical industry average of 8.3%.

View our latest analysis for W-Scope Chungju Plant

In the above chart we have measured W-Scope Chungju Plant's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering W-Scope Chungju Plant for free.

The Trend Of ROCE

In terms of W-Scope Chungju Plant's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 6.0% that they were earning one year ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 W-Scope Chungju Plant to turn into a multi-bagger.

The Key Takeaway

In summary, it's unfortunate that W-Scope Chungju Plant is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 20% from where it was year ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching W-Scope Chungju Plant, you might be interested to know about the 1 warning sign that our analysis has discovered.

While W-Scope Chungju Plant may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.