Returns On Capital Are Showing Encouraging Signs At Dgenx (KOSDAQ:113810)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Dgenx (KOSDAQ:113810) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Dgenx is:

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

0.092 = ₩3.8b ÷ (₩57b - ₩16b) (Based on the trailing twelve months to September 2024).

So, Dgenx has an ROCE of 9.2%. On its own, that's a low figure but it's around the 8.2% average generated by the Auto Components industry.

See our latest analysis for Dgenx

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dgenx's ROCE against it's prior returns. If you'd like to look at how Dgenx has performed in the past in other metrics, you can view this free graph of Dgenx's past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Dgenx is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 9.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Dgenx is utilizing 37% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Dgenx has decreased current liabilities to 28% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Dgenx has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

In summary, it's great to see that Dgenx has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 25% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 2 warning signs for Dgenx you'll probably want to know about.

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. 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.