The Trends At eSang NetworksLtd (KOSDAQ:080010) That You Should Know About

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at eSang NetworksLtd (KOSDAQ:080010) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for eSang NetworksLtd, this is the formula:

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

0.002 = ₩258m ÷ (₩159b - ₩32b) (Based on the trailing twelve months to September 2020).

Therefore, eSang NetworksLtd has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 6.1%.

See our latest analysis for eSang NetworksLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for eSang NetworksLtd's ROCE against it's prior returns. If you'd like to look at how eSang NetworksLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For eSang NetworksLtd Tell Us?

When we looked at the ROCE trend at eSang NetworksLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 0.2% from 5.7% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On eSang NetworksLtd's ROCE

We're a bit apprehensive about eSang NetworksLtd because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Despite the concerning underlying trends, the stock has actually gained 14% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 3 warning signs facing eSang NetworksLtd that you might find interesting.

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.

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