Ecopro Hn (KOSDAQ:383310) Could Be Struggling To Allocate Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Ecopro Hn (KOSDAQ:383310) and its ROCE trend, we weren't exactly thrilled.

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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. To calculate this metric for Ecopro Hn, this is the formula:

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

0.067 = ₩24b ÷ (₩467b - ₩104b) (Based on the trailing twelve months to December 2024).

Thus, Ecopro Hn has an ROCE of 6.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.9%.

View our latest analysis for Ecopro Hn

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ecopro Hn's ROCE against it's prior returns. If you'd like to look at how Ecopro Hn has performed in the past in other metrics, you can view this free graph of Ecopro Hn's past earnings, revenue and cash flow.

What Does the ROCE Trend For Ecopro Hn Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 29% three years ago, while the business's capital employed increased by 411%. Usually this isn't ideal, but given Ecopro Hn conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Ecopro Hn might not have received a full period of earnings contribution from it.

On a related note, Ecopro Hn has decreased its current liabilities to 22% 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. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

In summary, Ecopro Hn is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last three years, the stock has given away 36% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Ecopro Hn (including 2 which are a bit 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.