Can DK&DLtd (KOSDAQ:263020) Continue To Grow Its Returns On Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at DK&DLtd (KOSDAQ:263020) and its trend of ROCE, we really liked what we saw.

What is 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. To calculate this metric for DK&DLtd, this is the formula:

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

0.10 = ₩5.7b ÷ (₩70b - ₩14b) (Based on the trailing twelve months to September 2020).

So, DK&DLtd has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Luxury industry.

Check out our latest analysis for DK&DLtd

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

What Can We Tell From DK&DLtd's ROCE Trend?

Investors would be pleased with what's happening at DK&DLtd. Over the last five years, returns on capital employed have risen substantially to 10%. The amount of capital employed has increased too, by 151%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what DK&DLtd has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 75% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for DK&DLtd you'll probably want to know about.

While DK&DLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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