Our Take On The Returns On Capital At Daehan Flour MillsLtd (KRX:001130)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Daehan Flour MillsLtd (KRX:001130) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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 Flour MillsLtd is:

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

0.032 = ₩27b ÷ (₩1.1t - ₩230b) (Based on the trailing twelve months to September 2020).

Thus, Daehan Flour MillsLtd has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.9%.

Check out our latest analysis for Daehan Flour MillsLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Daehan Flour MillsLtd, check out these free graphs here.

The Trend Of ROCE

In terms of Daehan Flour MillsLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.2% from 6.0% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Daehan Flour MillsLtd's ROCE

Bringing it all together, while we're somewhat encouraged by Daehan Flour MillsLtd's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 13% in the last five years. Therefore based on the analysis done in this article, we don't think Daehan Flour MillsLtd has the makings of a multi-bagger.

Daehan Flour MillsLtd does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

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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