The Trends At Dong Ah Tire & RubberLtd (KRX:282690) That You Should Know About

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Dong Ah Tire & RubberLtd (KRX:282690) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Dong Ah Tire & RubberLtd, this is the formula:

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

0.041 = ₩15b ÷ (₩390b - ₩25b) (Based on the trailing twelve months to September 2020).

Therefore, Dong Ah Tire & RubberLtd has an ROCE of 4.1%. Even though it's in line with the industry average of 4.1%, it's still a low return by itself.

View our latest analysis for Dong Ah Tire & RubberLtd

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 Ah Tire & RubberLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Dong Ah Tire & RubberLtd Tell Us?

There hasn't been much to report for Dong Ah Tire & RubberLtd's returns and its level of capital employed because both metrics have been steady for the past one year. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Dong Ah Tire & RubberLtd to be a multi-bagger going forward.

Our Take On Dong Ah Tire & RubberLtd's ROCE

In summary, Dong Ah Tire & RubberLtd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last three years, the stock has given away 20% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Dong Ah Tire & RubberLtd, we've spotted 2 warning signs, and 1 of them is potentially serious.

While Dong Ah Tire & RubberLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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