Our Take On The Returns On Capital At Dongsin Engineering & Construction (KOSDAQ:025950)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Dongsin Engineering & Construction (KOSDAQ:025950), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Dongsin Engineering & Construction is:

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

0.0017 = ₩171m ÷ (₩111b - ₩10b) (Based on the trailing twelve months to September 2020).

So, Dongsin Engineering & Construction has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.4%.

See our latest analysis for Dongsin Engineering & Construction

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 Dongsin Engineering & Construction's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Dongsin Engineering & Construction's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 2.2%, but since then they've fallen to 0.2%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Dongsin Engineering & Construction in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 957% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One final note, you should learn about the 2 warning signs we've spotted with Dongsin Engineering & Construction (including 1 which shouldn't be ignored) .

While Dongsin Engineering & Construction 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. 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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