Slowing Rates Of Return At Daechang Solution (KOSDAQ:096350) Leave Little Room For Excitement

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Daechang Solution (KOSDAQ:096350) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Our free stock report includes 1 warning sign investors should be aware of before investing in Daechang Solution. Read for free now.

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. The formula for this calculation on Daechang Solution is:

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

0.0028 = ₩174m ÷ (₩135b - ₩73b) (Based on the trailing twelve months to December 2024).

Therefore, Daechang Solution has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Machinery industry average of 6.2%.

Check out our latest analysis for Daechang Solution

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'd like to look at how Daechang Solution has performed in the past in other metrics, you can view this free graph of Daechang Solution's past earnings, revenue and cash flow.

What Does the ROCE Trend For Daechang Solution Tell Us?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 25% in that same period. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

On a separate but related note, it's important to know that Daechang Solution has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. 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.

The Bottom Line

Overall, we're not ecstatic to see Daechang Solution reducing the amount of capital it employs in the business. And investors may be recognizing these trends since the stock has only returned a total of 28% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 1 warning sign for Daechang Solution that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.