Daehan Synthetic Fiber (KRX:003830) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Daehan Synthetic Fiber (KRX:003830) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Daehan Synthetic Fiber is:

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

0.0042 = ₩3.0b ÷ (₩722b - ₩15b) (Based on the trailing twelve months to December 2020).

Thus, Daehan Synthetic Fiber has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 6.9%.

View our latest analysis for Daehan Synthetic Fiber

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

The Trend Of ROCE

The fact that Daehan Synthetic Fiber is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 0.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Daehan Synthetic Fiber is utilizing 56% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 2.0%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Daehan Synthetic Fiber has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

Long story short, we're delighted to see that Daehan Synthetic Fiber's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 38% 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.

If you'd like to know about the risks facing Daehan Synthetic Fiber, we've discovered 1 warning sign that you should be aware of.

While Daehan Synthetic Fiber 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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