Returns On Capital At DOOSAN TESNA (KOSDAQ:131970) Paint A Concerning Picture

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. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within DOOSAN TESNA (KOSDAQ:131970), we weren't too hopeful.

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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. To calculate this metric for DOOSAN TESNA, this is the formula:

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

0.063 = ₩38b ÷ (₩788b - ₩183b) (Based on the trailing twelve months to December 2024).

So, DOOSAN TESNA has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.5% average generated by the Semiconductor industry.

See our latest analysis for DOOSAN TESNA

Above you can see how the current ROCE for DOOSAN TESNA 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 DOOSAN TESNA .

The Trend Of ROCE

In terms of DOOSAN TESNA's historical ROCE movements, the trend doesn't inspire confidence. About one year ago, returns on capital were 9.7%, however they're now substantially lower than that as we saw above. 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 DOOSAN TESNA becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that DOOSAN TESNA is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 38% 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 identified 4 warning signs with DOOSAN TESNA (at least 1 which can't be ignored) , and understanding them would certainly be useful.

While DOOSAN TESNA 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.