Financial metrics play a crucial role in assessing a company's health and trajectory. In this article, we delve deep into the world of ROCE and its implications for companies like KEPCO Engineering & Construction Company. Let's explore how these metrics can reveal whether a business is maturing or facing a decline.

Uncover the Hidden Truths of Company Financials

What Is Return On Capital Employed (ROCE)?

ROCE is a vital metric that measures a company's ability to generate pre-tax profits from the capital employed in its operations. For KEPCO Engineering & Construction Company, the calculation is as follows:Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)For instance, based on the trailing twelve months to September 2024, it is calculated as 0.054 = ₩30b ÷ (₩874b – ₩318b). This indicates that KEPCO Engineering & Construction Company has an ROCE of 5.4%, which is in line with the industry average but still relatively low on its own.

What Can We Tell From KEPCO Engineering & Construction Company’s ROCE Trend?

We are concerned about the trend of returns on capital at KEPCO Engineering & Construction Company. About four years ago, the returns on capital were a healthy 9.5%, but they have now significantly dropped. Meanwhile, the business is using approximately the same amount of capital as it did back then. Companies with such attributes are often mature and facing competition-related margin pressure. If these trends persist, it is unlikely that KEPCO Engineering & Construction Company will become a multi-bagger.On a side note, the company's current liabilities have increased over the past four years to 36% of total assets, which has distorted the ROCE to some extent. Without this increase, the ROCE could be even lower. Although the ratio is not currently too high, it is still worth monitoring as a high ratio could bring new risks.

The Bottom Line On KEPCO Engineering & Construction Company’s ROCE

A declining return on the same amount of capital is generally not a sign of a growth stock. Despite this, the stock has gained an astonishing 282% over the past five years, suggesting that investors are highly optimistic. However, the current underlying trends do not bode well for long-term performance. Unless these trends reverse, it might be time to look elsewhere.While KEPCO Engineering & Construction Company may not have the highest returns currently, we have compiled a list of companies that earn more than 25% return on equity. You can access this free list here.Valuation is a complex process, but we aim to simplify it. Discover if KEPCO Engineering & Construction Company is undervalued or overvalued with our detailed analysis, including fair value estimates, potential risks, dividends, insider trades, and its financial condition. Access our free analysis now.If you have feedback or concerns about this article, please get in touch with us directly at editorial-team (at) simplywallst.com. Our analysis is based on historical data and analyst forecasts using an unbiased methodology and is not intended to be financial advice. It does not recommend buying or selling any stock and does not consider your individual objectives or financial situation. We focus on long-term analysis driven by fundamental data and may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.