The Returns At Maeil Dairies (KOSDAQ:267980) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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, when we ran our eye over Maeil Dairies' (KOSDAQ:267980) trend of ROCE, we liked what we saw.

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

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 Maeil Dairies is:

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

0.16 = ₩86b ÷ (₩745b - ₩215b) (Based on the trailing twelve months to December 2020).

So, Maeil Dairies has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.4% it's much better.

See our latest analysis for Maeil Dairies

In the above chart we have measured Maeil Dairies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Maeil Dairies.

What Can We Tell From Maeil Dairies' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past two years, ROCE has remained relatively flat at around 16% and the business has deployed 23% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

To sum it up, Maeil Dairies has simply been reinvesting capital steadily, at those decent rates of return. However, over the last three years, the stock has only delivered a 7.1% return to shareholders who held over that period. So to determine if Maeil Dairies is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Maeil Dairies does have some risks though, and we've spotted 1 warning sign for Maeil Dairies that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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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