Our Take On The Returns On Capital At Daebo MagneticLtd (KOSDAQ:290670)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. In light of that, when we looked at Daebo MagneticLtd (KOSDAQ:290670) and its ROCE trend, we weren't exactly thrilled.

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 Daebo MagneticLtd, this is the formula:

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

0.0019 = ₩74m ÷ (₩66b - ₩26b) (Based on the trailing twelve months to September 2020).

Thus, Daebo MagneticLtd has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 5.4%.

View our latest analysis for Daebo MagneticLtd

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're interested in investigating Daebo MagneticLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Daebo MagneticLtd's ROCE Trend?

When we looked at the ROCE trend at Daebo MagneticLtd, we didn't gain much confidence. Around three years ago the returns on capital were 58%, but since then they've fallen to 0.2%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Daebo MagneticLtd's ROCE

We're a bit apprehensive about Daebo MagneticLtd because despite more capital being deployed in the business, returns on that capital and sales have both fallen. But investors must be expecting an improvement of sorts because over the last yearthe stock has delivered a respectable 22% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you want to know some of the risks facing Daebo MagneticLtd we've found 5 warning signs (3 shouldn't be ignored!) that you should be aware of before investing here.

While Daebo MagneticLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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