We're Watching These Trends At Dayou APLtd (KOSDAQ:290120)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Dayou APLtd (KOSDAQ:290120) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. To calculate this metric for Dayou APLtd, this is the formula:

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

0.19 = ₩13b ÷ (₩161b - ₩91b) (Based on the trailing twelve months to September 2020).

So, Dayou APLtd has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 4.2% generated by the Auto Components industry.

See our latest analysis for Dayou APLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dayou APLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Dayou APLtd, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Dayou APLtd, we didn't gain much confidence. To be more specific, ROCE has fallen from 26% over the last one year. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a side note, Dayou APLtd's current liabilities are still rather high at 57% of total assets. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Dayou APLtd's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Dayou APLtd have fallen, meanwhile the business is employing more capital than it was one year ago. And, the stock has remained flat over the last year, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Dayou APLtd (of which 1 is a bit unpleasant!) that you should know about.

While Dayou APLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

When trading Dayou APLtd or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.