Be Wary Of JTC (KOSDAQ:950170) And Its Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within JTC (KOSDAQ:950170), we weren't too hopeful.

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. The formula for this calculation on JTC is:

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

0.0086 = ₩1.8b ÷ (₩249b - ₩41b) (Based on the trailing twelve months to November 2023).

Therefore, JTC has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 5.4%.

See our latest analysis for JTC

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 JTC's past further, check out this free graph covering JTC's past earnings, revenue and cash flow.

What Does the ROCE Trend For JTC Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 8.9% five years ago and the business is utilizing 22% less capital, even after their capital raise (conducted prior to the latest reporting period).

The Key Takeaway

To see JTC reducing the capital employed in the business in tandem with diminishing returns, is concerning. Long term shareholders who've owned the stock over the last five years have experienced a 49% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you're still interested in JTC it's worth checking out our FREE intrinsic value approximation for A950170 to see if it's trading at an attractive price in other respects.

While JTC 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.