dhSteel's (KOSDAQ:021040) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 dhSteel (KOSDAQ:021040) so let's look a bit deeper.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for dhSteel, this is the formula:

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

0.036 = ₩2.0b ÷ (₩175b - ₩120b) (Based on the trailing twelve months to September 2025).

So, dhSteel has an ROCE of 3.6%. Even though it's in line with the industry average of 4.4%, it's still a low return by itself.

Check out our latest analysis for dhSteel

Historical performance is a great place to start when researching a stock so above you can see the gauge for dhSteel's ROCE against it's prior returns. If you're interested in investigating dhSteel's past further, check out this free graph covering dhSteel's past earnings, revenue and cash flow.

So How Is dhSteel's ROCE Trending?

Like most people, we're pleased that dhSteel is now generating some pretax earnings. The company was generating losses four years ago, but now it's turned around, earning 3.6% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 48% less capital than it was four years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 69% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

In Conclusion...

In summary, it's great to see that dhSteel has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 61% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for dhSteel (of which 2 don't sit too well with us!) that you should know about.

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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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.