Here's What We Make Of TJ media's (KOSDAQ:032540) Returns On Capital

When researching a stock for investment, what can tell us that the company is 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. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, TJ media (KOSDAQ:032540) we aren't filled with optimism, but let's investigate further.

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 TJ media:

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

0.013 = ₩1.2b ÷ (₩107b - ₩15b) (Based on the trailing twelve months to September 2020).

So, TJ media has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 7.8%.

See our latest analysis for TJ media

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

What Can We Tell From TJ media's ROCE Trend?

In terms of TJ media's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 2.1% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on TJ media becoming one if things continue as they have.

The Bottom Line On TJ media's ROCE

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. Despite the concerning underlying trends, the stock has actually gained 3.3% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you want to know some of the risks facing TJ media we've found 4 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While TJ media may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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