The Trends At Daehan Flour MillsLtd (KRX:001130) That You Should Know About

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Daehan Flour MillsLtd (KRX:001130), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Daehan Flour MillsLtd:

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%.

View 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're interested in investigating Daehan Flour MillsLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Daehan Flour MillsLtd's ROCE Trend?

When we looked at the ROCE trend at Daehan Flour MillsLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.2% from 6.0% five years ago. However it looks like Daehan Flour MillsLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

The Key Takeaway

To conclude, we've found that Daehan Flour MillsLtd is reinvesting in the business, but returns have been falling. Since the stock has declined 18% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 2 warning signs with Daehan Flour MillsLtd (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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