Returns On Capital Signal Difficult Times Ahead For Heng Sheng Holding Group (KOSDAQ:900270)

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Heng Sheng Holding Group (KOSDAQ:900270), so let's see why.

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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. To calculate this metric for Heng Sheng Holding Group, this is the formula:

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

0.01 = ₩3.7b ÷ (₩397b - ₩46b) (Based on the trailing twelve months to June 2025).

So, Heng Sheng Holding Group has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 3.3%.

View our latest analysis for Heng Sheng Holding Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Heng Sheng Holding Group's ROCE against it's prior returns. If you're interested in investigating Heng Sheng Holding Group's past further, check out this free graph covering Heng Sheng Holding Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Heng Sheng Holding Group. About five years ago, returns on capital were 12%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Heng Sheng Holding Group becoming one if things continue as they have.

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. Investors haven't taken kindly to these developments, since the stock has declined 70% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 4 warning signs for Heng Sheng Holding Group (1 shouldn't be ignored) you should be aware of.

While Heng Sheng Holding Group 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. 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.