SAMIL C&S (KRX:004440) May Have Issues Allocating Its Capital

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. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at SAMIL C&S (KRX:004440), we've spotted some signs that it could be struggling, so let's investigate.

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Understanding 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 SAMIL C&S:

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

0.0067 = ₩1.8b ÷ (₩346b - ₩74b) (Based on the trailing twelve months to September 2024).

So, SAMIL C&S has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 5.1%.

Check out our latest analysis for SAMIL C&S

Historical performance is a great place to start when researching a stock so above you can see the gauge for SAMIL C&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 SAMIL C&S.

What Does the ROCE Trend For SAMIL C&S Tell Us?

In terms of SAMIL C&S' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 3.4% that they were earning three years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 three years. If these trends continue, we wouldn't expect SAMIL C&S to turn into a multi-bagger.

The Bottom Line On SAMIL C&S' ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 52% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

SAMIL C&S does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

While SAMIL C&S may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.