What These Trends Mean At HansolHomeDeco.Co.Ltd (KRX:025750)

What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base 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 HansolHomeDeco.Co.Ltd (KRX:025750), we've spotted some signs that it could be struggling, so let's investigate.

What is Return On Capital Employed (ROCE)?

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).

So, HansolHomeDeco.Co.Ltd has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Forestry industry average of 5.4%.

Check out 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.

So How Is HansolHomeDeco.Co.Ltd's ROCE Trending?

In terms of HansolHomeDeco.Co.Ltd's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 3.9% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 HansolHomeDeco.Co.Ltd becoming one if things continue as they have.

The Bottom Line On HansolHomeDeco.Co.Ltd's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors must expect better things on the horizon though because the stock has risen 36% in 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.

HansolHomeDeco.Co.Ltd does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

If you’re looking to trade HansolHomeDeco.Co.Ltd, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.