Hung -Gu Oil (KOSDAQ:024060) Will Be Looking To Turn Around Its Returns

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Hung -Gu Oil (KOSDAQ:024060), 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 Hung -Gu Oil is:

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

0.00056 = ₩49m ÷ (₩91b - ₩3.5b) (Based on the trailing twelve months to September 2024).

Thus, Hung -Gu Oil has an ROCE of 0.06%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 3.0%.

See our latest analysis for Hung -Gu Oil

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

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Hung -Gu Oil. Unfortunately the returns on capital have diminished from the 1.9% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Hung -Gu Oil to turn into a multi-bagger.

Our Take On Hung -Gu Oil's ROCE

In summary, it's unfortunate that Hung -Gu Oil is generating lower returns from the same amount of capital. Yet despite these poor fundamentals, the stock has gained a huge 185% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you'd like to know more about Hung -Gu Oil, we've spotted 3 warning signs, and 1 of them is significant.

While Hung -Gu Oil isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.