Are Investors Concerned With What's Going On At Dongkuk Industries (KOSDAQ:005160)?

When researching a stock for investment, what can tell us that the company is in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Dongkuk Industries (KOSDAQ:005160), we've spotted some signs that it could be struggling, so let's investigate.

Understanding 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. Analysts use this formula to calculate it for Dongkuk Industries:

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

0.039 = ₩22b ÷ (₩743b - ₩162b) (Based on the trailing twelve months to September 2020).

So, Dongkuk Industries has an ROCE of 3.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.1%.

Check out our latest analysis for Dongkuk Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dongkuk Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Dongkuk Industries, check out these free graphs here.

The Trend Of ROCE

In terms of Dongkuk Industries' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 6.0% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Dongkuk Industries becoming one if things continue as they have.

The Bottom Line On Dongkuk Industries' ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 18% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Like most companies, Dongkuk Industries does come with some risks, and we've found 1 warning sign that you should be aware of.

While Dongkuk Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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