KEPCO Plant Service & EngineeringLtd (KRX:051600) Could Be Struggling To Allocate 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? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into KEPCO Plant Service & EngineeringLtd (KRX:051600), we weren't too upbeat about how things were going.
What Is 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. To calculate this metric for KEPCO Plant Service & EngineeringLtd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = ₩162b ÷ (₩1.6t - ₩272b) (Based on the trailing twelve months to September 2025).
So, KEPCO Plant Service & EngineeringLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.1% it's much better.
See our latest analysis for KEPCO Plant Service & EngineeringLtd
Above you can see how the current ROCE for KEPCO Plant Service & EngineeringLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for KEPCO Plant Service & EngineeringLtd .
What Does the ROCE Trend For KEPCO Plant Service & EngineeringLtd Tell Us?
There is reason to be cautious about KEPCO Plant Service & EngineeringLtd, given the returns are trending downwards. To be more specific, the ROCE was 15% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on KEPCO Plant Service & EngineeringLtd becoming one if things continue as they have.
The Bottom Line On KEPCO Plant Service & EngineeringLtd's ROCE
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these poor fundamentals, the stock has gained a huge 112% over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.
If you'd like to know about the risks facing KEPCO Plant Service & EngineeringLtd, we've discovered 1 warning sign that you should be aware of.
While KEPCO Plant Service & EngineeringLtd 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. 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.