Slowing Rates Of Return At Zungwon En-Sys (KOSDAQ:045510) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Zungwon En-Sys (KOSDAQ:045510), it didn't seem to tick all of these boxes.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Zungwon En-Sys, this is the formula:

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

0.035 = ₩1.7b ÷ (₩94b - ₩46b) (Based on the trailing twelve months to December 2024).

Therefore, Zungwon En-Sys has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the IT industry average of 7.5%.

View our latest analysis for Zungwon En-Sys

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 Zungwon En-Sys.

What Can We Tell From Zungwon En-Sys' ROCE Trend?

There hasn't been much to report for Zungwon En-Sys' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Zungwon En-Sys doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that Zungwon En-Sys has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Zungwon En-Sys' ROCE

We can conclude that in regards to Zungwon En-Sys' returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 58% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing: We've identified 3 warning signs with Zungwon En-Sys (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Zungwon En-Sys 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.