TELCON RF PHARMACEUTICAL (KOSDAQ:200230) Could Be At Risk Of Shrinking As A Company

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, TELCON RF PHARMACEUTICAL (KOSDAQ:200230) we aren't filled with optimism, but let's investigate further.

Understanding Return On Capital Employed (ROCE)

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 TELCON RF PHARMACEUTICAL is:

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

0.0036 = ₩336m ÷ (₩148b - ₩55b) (Based on the trailing twelve months to June 2024).

So, TELCON RF PHARMACEUTICAL has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 6.9%.

Check out our latest analysis for TELCON RF PHARMACEUTICAL

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

What The Trend Of ROCE Can Tell Us

We aren't too thrilled by the trend because ROCE has declined 68% over the last five years and despite the capital raising conducted before the latest reports, the business has -42% less capital employed.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 37%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 0.4%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

The Bottom Line

In summary, it's unfortunate that TELCON RF PHARMACEUTICAL is shrinking its capital base and also generating lower returns. We expect this has contributed to the stock plummeting 87% during the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 2 warning signs for TELCON RF PHARMACEUTICAL that we think you should be aware of.

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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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.