Returns On Capital At Byucksan (KRX:007210) Paint A Concerning Picture

What financial metrics can indicate to us that a company is maturing or even 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. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within Byucksan (KRX:007210), we weren't too hopeful.

What is 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. Analysts use this formula to calculate it for Byucksan:

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

0.021 = ₩6.7b ÷ (₩477b - ₩151b) (Based on the trailing twelve months to September 2020).

So, Byucksan has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Building industry average of 4.0%.

View our latest analysis for Byucksan

Historical performance is a great place to start when researching a stock so above you can see the gauge for Byucksan's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Byucksan, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of Byucksan's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 12% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Byucksan to turn into a multi-bagger.

The Bottom Line

In summary, it's unfortunate that Byucksan is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 68% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Byucksan (including 1 which is potentially serious) .

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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This article by Simply Wall St is general in nature. 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.
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