Returns On Capital At SeAH SPECIALSTEEL (KRX:019440) Paint A Concerning Picture

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. In light of that, from a first glance at SeAH SPECIALSTEEL (KRX:019440), we've spotted some signs that it could be struggling, so let's investigate.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for SeAH SPECIALSTEEL:

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

0.0023 = ₩856m ÷ (₩552b - ₩188b) (Based on the trailing twelve months to December 2020).

Thus, SeAH SPECIALSTEEL has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 4.7%.

Check out our latest analysis for SeAH SPECIALSTEEL

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

What The Trend Of ROCE Can Tell Us

In terms of SeAH SPECIALSTEEL's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 10%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 SeAH SPECIALSTEEL to turn into a multi-bagger.

The Bottom Line

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know more about SeAH SPECIALSTEEL, we've spotted 3 warning signs, and 2 of them are significant.

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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