Investors Could Be Concerned With SBS Contents Hub's (KOSDAQ:046140) Returns On Capital

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. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. Having said that, after a brief look, SBS Contents Hub (KOSDAQ:046140) we aren't filled with optimism, but let's investigate further.

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 SBS Contents Hub is:

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

0.047 = ₩7.2b ÷ (₩195b - ₩41b) (Based on the trailing twelve months to December 2020).

Therefore, SBS Contents Hub has an ROCE of 4.7%. Even though it's in line with the industry average of 4.9%, it's still a low return by itself.

Check out our latest analysis for SBS Contents Hub

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 want to delve into the historical earnings, revenue and cash flow of SBS Contents Hub, check out these free graphs here.

So How Is SBS Contents Hub's ROCE Trending?

In terms of SBS Contents Hub's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 7.0% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on SBS Contents Hub becoming one if things continue as they have.

What We Can Learn From SBS Contents Hub'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 42% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Like most companies, SBS Contents Hub does come with some risks, and we've found 1 warning sign that you should be aware of.

While SBS Contents Hub 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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