Here's What's Concerning About RemedLtd's (KOSDAQ:302550) Returns On Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at RemedLtd (KOSDAQ:302550), we've spotted some signs that it could be struggling, so let's investigate.

Understanding 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. The formula for this calculation on RemedLtd is:

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

0.0091 = ₩453m ÷ (₩65b - ₩16b) (Based on the trailing twelve months to September 2024).

Thus, RemedLtd has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.5%.

View our latest analysis for RemedLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for RemedLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of RemedLtd.

What The Trend Of ROCE Can Tell Us

We aren't too thrilled by the trend because ROCE has declined 84% over the last four years and despite the capital raising conducted before the latest reports, the business has -31% less capital employed.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 24%, which has impacted the ROCE. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

Our Take On RemedLtd's ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 67% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

On a final note, we found 4 warning signs for RemedLtd (1 can't be ignored) you should be aware of.

While RemedLtd 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.