BRIDGETEC (KOSDAQ:064480) Will Be Looking To Turn Around Its Returns

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into BRIDGETEC (KOSDAQ:064480), 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 BRIDGETEC is:

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

0.05 = ₩1.7b ÷ (₩43b - ₩7.9b) (Based on the trailing twelve months to December 2020).

So, BRIDGETEC has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the IT industry average of 10%.

Check out our latest analysis for BRIDGETEC

Historical performance is a great place to start when researching a stock so above you can see the gauge for BRIDGETEC's ROCE against it's prior returns. If you'd like to look at how BRIDGETEC has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For BRIDGETEC Tell Us?

We are a bit anxious about the trends of ROCE at BRIDGETEC. The company used to generate 14% on its capital five years ago but it has since fallen noticeably. On top of that, the business is utilizing 23% less capital within its operations. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Bottom Line

In summary, it's unfortunate that BRIDGETEC is shrinking its capital base and also generating lower returns. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing: We've identified 3 warning signs with BRIDGETEC (at least 1 which is significant) , and understanding them would certainly be useful.

While BRIDGETEC 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. 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.
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