Are Investors Concerned With What's Going On At Samwonsteel (KRX:023000)?

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, Samwonsteel (KRX:023000) we aren't filled with optimism, but let's investigate further.

Understanding 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 Samwonsteel:

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

0.04 = ₩8.8b ÷ (₩252b - ₩34b) (Based on the trailing twelve months to September 2020).

Therefore, Samwonsteel has an ROCE of 4.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.1%.

See our latest analysis for Samwonsteel

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're interested in investigating Samwonsteel's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Samwonsteel's ROCE Trend?

In terms of Samwonsteel's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 8.2%, 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Samwonsteel becoming one if things continue as they have.

Our Take On Samwonsteel's ROCE

In summary, it's unfortunate that Samwonsteel is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 2.8% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you'd like to know about the risks facing Samwonsteel, we've discovered 1 warning sign that you should be aware of.

While Samwonsteel 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. 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.
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