KEPCO Engineering & Construction Company (KRX:052690) Will Be Hoping To Turn Its Returns On Capital Around

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. And from a first read, things don't look too good at KEPCO Engineering & Construction Company (KRX:052690), so let's see why.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for KEPCO Engineering & Construction Company:

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

0.058 = ₩36b ÷ (₩853b - ₩236b) (Based on the trailing twelve months to September 2025).

Thus, KEPCO Engineering & Construction Company has an ROCE of 5.8%. In absolute terms, that's a low return but it's around the Construction industry average of 6.8%.

See our latest analysis for KEPCO Engineering & Construction Company

In the above chart we have measured KEPCO Engineering & Construction Company'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 KEPCO Engineering & Construction Company .

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at KEPCO Engineering & Construction Company. Unfortunately the returns on capital have diminished from the 9.5% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 KEPCO Engineering & Construction Company to turn into a multi-bagger.

In Conclusion...

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. Since the stock has skyrocketed 495% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

KEPCO Engineering & Construction Company does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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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.