Dong-A Hwa SungLtd (KOSDAQ:041930) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Dong-A Hwa SungLtd's (KOSDAQ:041930) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Dong-A Hwa SungLtd:

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

0.12 = ₩19b ÷ (₩302b - ₩135b) (Based on the trailing twelve months to September 2024).

Therefore, Dong-A Hwa SungLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 8.2% it's much better.

View our latest analysis for Dong-A Hwa SungLtd

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're interested in investigating Dong-A Hwa SungLtd's past further, check out this free graph covering Dong-A Hwa SungLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

Dong-A Hwa SungLtd is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. So we're very much inspired by what we're seeing at Dong-A Hwa SungLtd thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Dong-A Hwa SungLtd has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Dong-A Hwa SungLtd's ROCE

In summary, it's great to see that Dong-A Hwa SungLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 31% to shareholders. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Dong-A Hwa SungLtd that you might find interesting.

While Dong-A Hwa SungLtd 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.