What Do The Returns At Dongyang E&P (KOSDAQ:079960) Mean Going Forward?

Did you know there are some financial metrics that can provide clues of a potential 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 Dongyang E&P's (KOSDAQ:079960) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Dongyang E&P, this is the formula:

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

0.15 = ₩38b ÷ (₩297b - ₩52b) (Based on the trailing twelve months to June 2020).

Thus, Dongyang E&P has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Electrical industry.

View our latest analysis for Dongyang E&P

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

What Does the ROCE Trend For Dongyang E&P Tell Us?

Investors would be pleased with what's happening at Dongyang E&P. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Dongyang E&P's ROCE

All in all, it's terrific to see that Dongyang E&P is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 34% to shareholders. So with that in mind, we think the stock deserves further research.

While Dongyang E&P looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether A079960 is currently trading for a fair price.

While Dongyang E&P 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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