Returns On Capital Signal Tricky Times Ahead For DYPNFLtd (KOSDAQ:104460)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after investigating DYPNFLtd (KOSDAQ:104460), we don't think it's current trends fit the mold of a multi-bagger.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for DYPNFLtd:

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

0.15 = ₩24b ÷ (₩321b - ₩158b) (Based on the trailing twelve months to December 2024).

So, DYPNFLtd has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Machinery industry.

See our latest analysis for DYPNFLtd

Above you can see how the current ROCE for DYPNFLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering DYPNFLtd for free.

So How Is DYPNFLtd's ROCE Trending?

When we looked at the ROCE trend at DYPNFLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 15% from 38% five years ago. 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.

Another thing to note, DYPNFLtd has a high ratio of current liabilities to total assets of 49%. 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 DYPNFLtd's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for DYPNFLtd. Furthermore the stock has climbed 87% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

DYPNFLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for A104460 on our platform quite valuable.

While DYPNFLtd 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. 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.