Returns On Capital At Daesang (KRX:001680) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Daesang (KRX:001680) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Daesang is:

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

0.069 = ₩157b ÷ (₩3.4t - ₩1.2t) (Based on the trailing twelve months to September 2024).

Thus, Daesang has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Food industry average of 7.6%.

Check out our latest analysis for Daesang

Above you can see how the current ROCE for Daesang compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Daesang .

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Daesang in recent years. Over the past five years, ROCE has remained relatively flat at around 6.9% and the business has deployed 48% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Daesang's ROCE

In summary, Daesang has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 9.9% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

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

While Daesang 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.