What We Make Of Daesang Holdings' (KRX:084690) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Daesang Holdings (KRX:084690) so let's look a bit deeper.

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 Daesang Holdings:

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

0.12 = ₩267b ÷ (₩3.1t - ₩963b) (Based on the trailing twelve months to September 2020).

Therefore, Daesang Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Food industry.

See our latest analysis for Daesang Holdings

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'd like to look at how Daesang Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Daesang Holdings' ROCE Trending?

We like the trends that we're seeing from Daesang Holdings. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at Daesang Holdings thanks to its ability to profitably reinvest capital.

What We Can Learn From Daesang Holdings' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Daesang Holdings has. Astute investors may have an opportunity here because the stock has declined 18% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Daesang Holdings we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

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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