The Trends At DAEYANG ELECTRIC.Co.Ltd (KOSDAQ:108380) That You Should Know About

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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.

What is 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. The formula for this calculation on DAEYANG ELECTRIC.Co.Ltd is:

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

0.069 = ₩15b ÷ (₩269b - ₩56b) (Based on the trailing twelve months to June 2020).

Therefore, DAEYANG ELECTRIC.Co.Ltd has an ROCE of 6.9%. Even though it's in line with the industry average of 7.2%, it's still a low return by itself.

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'd like to look at how DAEYANG ELECTRIC.Co.Ltd 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 DAEYANG ELECTRIC.Co.Ltd's ROCE Trend?

When we looked at the ROCE trend at DAEYANG ELECTRIC.Co.Ltd, we didn't gain much confidence. Around five years ago the returns on capital were 10%, but since then they've fallen to 6.9%. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On DAEYANG ELECTRIC.Co.Ltd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that DAEYANG ELECTRIC.Co.Ltd is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 30% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

DAEYANG ELECTRIC.Co.Ltd does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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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