Stock Analysis

Is Daelim B&CoLtd (KRX:005750) Struggling?

KOSE:A005750
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If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Daelim B&CoLtd (KRX:005750), we've spotted some signs that it could be struggling, so let's investigate.

Understanding 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 Daelim B&CoLtd is:

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

0.00064 = ₩156m ÷ (₩323b - ₩81b) (Based on the trailing twelve months to September 2020).

So, Daelim B&CoLtd has an ROCE of 0.06%. Ultimately, that's a low return and it under-performs the Building industry average of 4.0%.

View our latest analysis for Daelim B&CoLtd

roce
KOSE:A005750 Return on Capital Employed March 13th 2021

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

What Can We Tell From Daelim B&CoLtd's ROCE Trend?

We are a bit worried about the trend of returns on capital at Daelim B&CoLtd. About five years ago, returns on capital were 5.7%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Daelim B&CoLtd to turn into a multi-bagger.

The Bottom Line On Daelim B&CoLtd's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 62% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 4 warning signs for Daelim B&CoLtd (2 are a bit concerning) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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