Will DYPNFLtd (KOSDAQ:104460) Repeat Its Return Growth Of The Past?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at DYPNFLtd's (KOSDAQ:104460) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for DYPNFLtd:

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

0.31 = ₩31b ÷ (₩175b - ₩77b) (Based on the trailing twelve months to September 2020).

Thus, DYPNFLtd has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 5.4% earned by companies in a similar industry.

Check out our latest analysis for DYPNFLtd

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

What Can We Tell From DYPNFLtd's ROCE Trend?

We like the trends that we're seeing from DYPNFLtd. Over the last five years, returns on capital employed have risen substantially to 31%. The amount of capital employed has increased too, by 66%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, DYPNFLtd has a high ratio of current liabilities to total assets of 44%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From DYPNFLtd's ROCE

In summary, it's great to see that DYPNFLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 299% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

DYPNFLtd does have some risks though, and we've spotted 1 warning sign for DYPNFLtd that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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