Be Wary Of TEMC CNS (KOSDAQ:241790) And Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at TEMC CNS (KOSDAQ:241790), it didn't seem to tick all of these boxes.

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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. Analysts use this formula to calculate it for TEMC CNS:

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

0.033 = ₩3.8b ÷ (₩174b - ₩57b) (Based on the trailing twelve months to March 2025).

So, TEMC CNS has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 6.2%.

View our latest analysis for TEMC CNS

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 , check out these free graphs detailing revenue and cash flow performance of TEMC CNS.

So How Is TEMC CNS' ROCE Trending?

When we looked at the ROCE trend at TEMC CNS, we didn't gain much confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 3.3%. 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.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 33%, which has impacted the ROCE. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

Our Take On TEMC CNS' ROCE

In summary, we're somewhat concerned by TEMC CNS' diminishing returns on increasing amounts of capital. Investors haven't taken kindly to these developments, since the stock has declined 54% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

TEMC CNS does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is concerning...

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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.