DAE-IL (KRX:092200) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in DAE-IL's (KRX:092200) returns on capital, so let's have a look.

What Is 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. To calculate this metric for DAE-IL, this is the formula:

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

0.13 = ₩36b ÷ (₩684b - ₩417b) (Based on the trailing twelve months to December 2023).

Therefore, DAE-IL has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Auto Components industry.

View our latest analysis for DAE-IL

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

So How Is DAE-IL's ROCE Trending?

DAE-IL is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 85% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, DAE-IL's current liabilities are still rather high at 61% 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On DAE-IL's ROCE

To sum it up, DAE-IL is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 7.4% to shareholders. So with that in mind, we think the stock deserves further research.

One final note, you should learn about the 3 warning signs we've spotted with DAE-IL (including 2 which don't sit too well with us) .

While DAE-IL 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.