Ecopro Hn (KOSDAQ:383310) Will Want To Turn Around Its Return Trends

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, while the ROCE is currently high for Ecopro Hn (KOSDAQ:383310), we aren't jumping out of our chairs because returns are decreasing.

What Is 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 Ecopro Hn:

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

0.25 = ₩37b ÷ (₩230b - ₩84b) (Based on the trailing twelve months to March 2024).

So, Ecopro Hn has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 7.4%.

View our latest analysis for Ecopro Hn

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ecopro Hn.

What Can We Tell From Ecopro Hn's ROCE Trend?

On the surface, the trend of ROCE at Ecopro Hn doesn't inspire confidence. While it's comforting that the ROCE is high, two years ago it was 34%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Ecopro Hn's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Ecopro Hn have fallen, meanwhile the business is employing more capital than it was two years ago. Investors haven't taken kindly to these developments, since the stock has declined 61% from where it was three years ago. 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 Ecopro Hn (including 1 which shouldn't be ignored) .

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.

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