Can ZinitixLtd (KOSDAQ:303030) Turn Things Around?

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after we looked into ZinitixLtd (KOSDAQ:303030), the trends above didn't look too great.

Return On Capital Employed (ROCE): What is it?

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 ZinitixLtd is:

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

0.09 = ₩3.2b ÷ (₩44b - ₩9.0b) (Based on the trailing twelve months to September 2020).

Thus, ZinitixLtd has an ROCE of 9.0%. On its own, that's a low figure but it's around the 9.8% average generated by the Semiconductor industry.

Check out our latest analysis for ZinitixLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for ZinitixLtd's ROCE against it's prior returns. If you're interested in investigating ZinitixLtd's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at ZinitixLtd. Unfortunately the returns on capital have diminished from the 14% that they were earning one year ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 ZinitixLtd becoming one if things continue as they have.

Our Take On ZinitixLtd's ROCE

In summary, it's unfortunate that ZinitixLtd is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 14% over the last year, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with ZinitixLtd (including 1 which is is a bit unpleasant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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