These Metrics Don't Make HansolHomeDeco.Co.Ltd (KRX:025750) Look Too Strong

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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. So after we looked into HansolHomeDeco.Co.Ltd (KRX:025750), the trends above didn't look too great.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on HansolHomeDeco.Co.Ltd is:

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

0.0036 = ₩800m ÷ (₩301b - ₩77b) (Based on the trailing twelve months to September 2020).

Thus, HansolHomeDeco.Co.Ltd has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Forestry industry average of 5.2%.

View our latest analysis for HansolHomeDeco.Co.Ltd

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

What Does the ROCE Trend For HansolHomeDeco.Co.Ltd Tell Us?

We are a bit worried about the trend of returns on capital at HansolHomeDeco.Co.Ltd. Unfortunately the returns on capital have diminished from the 3.9% that they were earning five years ago. 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. If these trends continue, we wouldn't expect HansolHomeDeco.Co.Ltd to turn into a multi-bagger.

The Key Takeaway

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 16% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

On a final note, we found 4 warning signs for HansolHomeDeco.Co.Ltd (2 don't sit too well with us) you should be aware of.

While HansolHomeDeco.Co.Ltd 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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