Slowing Rates Of Return At SEOWONINTECH.Co.Ltd (KOSDAQ:093920) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at SEOWONINTECH.Co.Ltd (KOSDAQ:093920) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on SEOWONINTECH.Co.Ltd is:

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

0.11 = ₩19b ÷ (₩209b - ₩37b) (Based on the trailing twelve months to December 2020).

So, SEOWONINTECH.Co.Ltd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Electronic industry.

View our latest analysis for SEOWONINTECH.Co.Ltd

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'd like to look at how SEOWONINTECH.Co.Ltd 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 SEOWONINTECH.Co.Ltd Tell Us?

There hasn't been much to report for SEOWONINTECH.Co.Ltd's 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. With that in mind, unless investment picks up again in the future, we wouldn't expect SEOWONINTECH.Co.Ltd to be a multi-bagger going forward.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 18% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From SEOWONINTECH.Co.Ltd's ROCE

In a nutshell, SEOWONINTECH.Co.Ltd has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 12% 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.

SEOWONINTECH.Co.Ltd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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