How Has Kisan Telecom (KOSDAQ:035460) Allocated Its Capital?

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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 combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after we looked into Kisan Telecom (KOSDAQ:035460), the trends above didn't look too great.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Kisan Telecom is:

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

0.071 = ₩3.4b ÷ (₩77b - ₩30b) (Based on the trailing twelve months to September 2020).

Therefore, Kisan Telecom has an ROCE of 7.1%. Even though it's in line with the industry average of 7.2%, it's still a low return by itself.

See our latest analysis for Kisan Telecom

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kisan Telecom's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kisan Telecom, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of Kisan Telecom's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 9.5% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Kisan Telecom to turn into a multi-bagger.

What We Can Learn From Kisan Telecom's ROCE

In summary, it's unfortunate that Kisan Telecom is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 29% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know about the risks facing Kisan Telecom, we've discovered 2 warning signs that you should be aware of.

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