The Trends At Doosan Bobcat (KRX:241560) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Doosan Bobcat (KRX:241560), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Doosan Bobcat:

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

0.058 = ₩359b ÷ (₩7.2t - ₩1.1t) (Based on the trailing twelve months to September 2020).

Thus, Doosan Bobcat has an ROCE of 5.8%. In absolute terms, that's a low return but it's around the Machinery industry average of 5.4%.

See our latest analysis for Doosan Bobcat

Above you can see how the current ROCE for Doosan Bobcat compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Doosan Bobcat.

What Does the ROCE Trend For Doosan Bobcat Tell Us?

There hasn't been much to report for Doosan Bobcat's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Doosan Bobcat to be a multi-bagger going forward. This probably explains why Doosan Bobcat is paying out 42% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

What We Can Learn From Doosan Bobcat's ROCE

In summary, Doosan Bobcat isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last three years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to continue researching Doosan Bobcat, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Doosan Bobcat 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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