These Return Metrics Don't Make Shin Hwa Sil UpLtd (KRX:001770) Look Too Strong

What underlying fundamental trends can indicate that a company might be in decline? 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. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Shin Hwa Sil UpLtd (KRX:001770), we weren't too upbeat about how things were going.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Shin Hwa Sil UpLtd:

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

0.0056 = ₩232m ÷ (₩64b - ₩23b) (Based on the trailing twelve months to December 2020).

So, Shin Hwa Sil UpLtd has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 4.7%.

See our latest analysis for Shin Hwa Sil UpLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Shin Hwa Sil UpLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Shin Hwa Sil UpLtd's ROCE Trend?

We are a bit worried about the trend of returns on capital at Shin Hwa Sil UpLtd. About five years ago, returns on capital were 6.4%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 Shin Hwa Sil UpLtd becoming one if things continue as they have.

The Bottom Line On Shin Hwa Sil UpLtd'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 62% 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'd like to know about the risks facing Shin Hwa Sil UpLtd, we've discovered 4 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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