Will Digital Daesung's (KOSDAQ:068930) Growth In ROCE Persist?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Digital Daesung (KOSDAQ:068930) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Digital Daesung is:

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

0.15 = ₩16b ÷ (₩136b - ₩28b) (Based on the trailing twelve months to September 2020).

Therefore, Digital Daesung has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Consumer Services industry.

View our latest analysis for Digital Daesung

In the above chart we have measured Digital Daesung's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Digital Daesung's ROCE Trending?

Investors would be pleased with what's happening at Digital Daesung. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 62%. So we're very much inspired by what we're seeing at Digital Daesung thanks to its ability to profitably reinvest capital.

Our Take On Digital Daesung's ROCE

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 Digital Daesung has. And a remarkable 208% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Digital Daesung does have some risks though, and we've spotted 2 warning signs for Digital Daesung that you might be interested in.

While Digital Daesung 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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