Cell Bio Human TechLtd (KOSDAQ:318160) Could Be Struggling To Allocate Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. And from a first read, things don't look too good at Cell Bio Human TechLtd (KOSDAQ:318160), so let's see why.

What Is 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 Cell Bio Human TechLtd, this is the formula:

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

0.067 = ₩3.1b ÷ (₩53b - ₩7.5b) (Based on the trailing twelve months to September 2024).

Thus, Cell Bio Human TechLtd has an ROCE of 6.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.5%.

View our latest analysis for Cell Bio Human TechLtd

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

What Can We Tell From Cell Bio Human TechLtd's ROCE Trend?

In terms of Cell Bio Human TechLtd's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 15%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Cell Bio Human TechLtd to turn into a multi-bagger.

The Bottom Line On Cell Bio Human TechLtd's ROCE

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. Yet despite these concerning fundamentals, the stock has performed strongly with a 8.1% return over the last year, 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Cell Bio Human TechLtd (of which 1 is a bit concerning!) that you should know about.

While Cell Bio Human TechLtd 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.