Our Take On The Returns On Capital At Daesung FinetecLtd (KOSDAQ:104040)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Daesung FinetecLtd (KOSDAQ:104040), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 Daesung FinetecLtd is:

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

0.0091 = ₩562m ÷ (₩93b - ₩31b) (Based on the trailing twelve months to September 2020).

Thus, Daesung FinetecLtd has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 4.1%.

View our latest analysis for Daesung FinetecLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Daesung FinetecLtd's ROCE against it's prior returns. If you're interested in investigating Daesung FinetecLtd's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Daesung FinetecLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.9% from 11% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Daesung FinetecLtd is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 154% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 5 warning signs we've spotted with Daesung FinetecLtd (including 2 which are a bit unpleasant) .

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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This article by Simply Wall St is general in nature. 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.
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