JUSUNG ENGINEERINGLtd (KOSDAQ:036930) Is Reinvesting At Lower Rates Of Return

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at JUSUNG ENGINEERINGLtd (KOSDAQ:036930) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for JUSUNG ENGINEERINGLtd:

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

0.039 = ₩29b ÷ (₩805b - ₩62b) (Based on the trailing twelve months to December 2023).

Thus, JUSUNG ENGINEERINGLtd has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.4%.

View our latest analysis for JUSUNG ENGINEERINGLtd

Above you can see how the current ROCE for JUSUNG ENGINEERINGLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for JUSUNG ENGINEERINGLtd .

What Does the ROCE Trend For JUSUNG ENGINEERINGLtd Tell Us?

When we looked at the ROCE trend at JUSUNG ENGINEERINGLtd, we didn't gain much confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 3.9%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On JUSUNG ENGINEERINGLtd's ROCE

In summary, we're somewhat concerned by JUSUNG ENGINEERINGLtd's diminishing returns on increasing amounts of capital. Since the stock has skyrocketed 360% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

On a separate note, we've found 2 warning signs for JUSUNG ENGINEERINGLtd you'll probably want to know about.

While JUSUNG ENGINEERINGLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.