The Returns On Capital At SAMIL C&S (KRX:004440) Don't Inspire Confidence

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. On that note, looking into SAMIL C&S (KRX:004440), we weren't too upbeat about how things were going.

Our free stock report includes 2 warning signs investors should be aware of before investing in SAMIL C&S. Read for free now.

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. The formula for this calculation on SAMIL C&S is:

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%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 7.0%.

View 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'd like to look at how SAMIL C&S has performed in the past in other metrics, you can view this free graph of SAMIL C&S' past earnings, revenue and cash flow.

What The Trend Of ROCE Can 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. 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 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

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. Investors haven't taken kindly to these developments, since the stock has declined 36% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

SAMIL C&S does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.