Can ShinWon (KRX:009270) Turn Things Around?

What financial metrics can indicate to us that a company is maturing or even in decline? 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. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within ShinWon (KRX:009270), we weren't too hopeful.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ShinWon is:

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

0.0059 = ₩1.6b ÷ (₩430b - ₩167b) (Based on the trailing twelve months to September 2020).

Thus, ShinWon has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 7.4%.

Check out our latest analysis for ShinWon

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

So How Is ShinWon's ROCE Trending?

We are a bit worried about the trend of returns on capital at ShinWon. To be more specific, the ROCE was 7.3% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 ShinWon becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that ShinWon is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 18% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing: We've identified 3 warning signs with ShinWon (at least 2 which shouldn't be ignored) , and understanding them would certainly be useful.

While ShinWon 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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