Will Duoback's (KOSDAQ:073190) Growth In ROCE Persist?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Duoback (KOSDAQ:073190) and its trend of ROCE, we really liked what we saw.

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 Duoback is:

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

0.011 = ₩314m ÷ (₩34b - ₩5.0b) (Based on the trailing twelve months to September 2020).

Thus, Duoback has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 14%.

View our latest analysis for Duoback

Historical performance is a great place to start when researching a stock so above you can see the gauge for Duoback's ROCE against it's prior returns. If you're interested in investigating Duoback's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Duoback's ROCE Trending?

It's great to see that Duoback has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 1.1% on their capital employed. Additionally, the business is utilizing 26% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Bottom Line

In summary, it's great to see that Duoback has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we've found 1 warning sign for Duoback that we think you should be aware of.

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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