Be Wary Of SAMRYOONGLtd (KOSDAQ:014970) And Its Returns On Capital

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into SAMRYOONGLtd (KOSDAQ:014970), the trends above didn't look too great.

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. To calculate this metric for SAMRYOONGLtd, this is the formula:

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

0.0086 = ₩692m ÷ (₩127b - ₩47b) (Based on the trailing twelve months to September 2020).

So, SAMRYOONGLtd has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 5.7%.

See our latest analysis for SAMRYOONGLtd

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

What Can We Tell From SAMRYOONGLtd's ROCE Trend?

In terms of SAMRYOONGLtd's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 11% that they were earning five years ago. 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. If these trends continue, we wouldn't expect SAMRYOONGLtd to turn into a multi-bagger.

What We Can Learn From SAMRYOONGLtd's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 48% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to know some of the risks facing SAMRYOONGLtd we've found 6 warning signs (2 are significant!) that you should be aware of before investing here.

While SAMRYOONGLtd 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. 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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