Has DAEYANG ELECTRIC.Co.Ltd (KOSDAQ:108380) Got What It Takes To Become A Multi-Bagger?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. 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 DAEYANG ELECTRIC.Co.Ltd (KOSDAQ:108380) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for DAEYANG ELECTRIC.Co.Ltd, this is the formula:

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

0.06 = ₩13b ÷ (₩266b - ₩50b) (Based on the trailing twelve months to September 2020).

Therefore, DAEYANG ELECTRIC.Co.Ltd has an ROCE of 6.0%. In absolute terms, that's a low return but it's around the Electrical industry average of 6.8%.

Check out our latest analysis for DAEYANG ELECTRIC.Co.Ltd

Historical performance is a great place to start when researching a stock so above you can see the gauge for DAEYANG ELECTRIC.Co.Ltd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of DAEYANG ELECTRIC.Co.Ltd, check out these free graphs here.

So How Is DAEYANG ELECTRIC.Co.Ltd's ROCE Trending?

In terms of DAEYANG ELECTRIC.Co.Ltd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.0% from 11% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that DAEYANG ELECTRIC.Co.Ltd is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 30% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to know some of the risks facing DAEYANG ELECTRIC.Co.Ltd we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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