Returns On Capital - An Important Metric For Dong Won Fisheries (KRX:030720)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So when we looked at Dong Won Fisheries (KRX:030720) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Dong Won Fisheries, this is the formula:

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

0.031 = ₩2.4b ÷ (₩113b - ₩37b) (Based on the trailing twelve months to September 2020).

So, Dong Won Fisheries has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.9%.

See our latest analysis for Dong Won Fisheries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dong Won Fisheries' ROCE against it's prior returns. If you'd like to look at how Dong Won Fisheries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Dong Won Fisheries' ROCE Trend?

Shareholders will be relieved that Dong Won Fisheries has broken into profitability. The company now earns 3.1% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Key Takeaway

In summary, we're delighted to see that Dong Won Fisheries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 12% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 4 warning signs we've spotted with Dong Won Fisheries (including 1 which can't be ignored) .

While Dong Won Fisheries 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. 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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