Some Investors May Be Worried About Dongwha EnterpriseLtd's (KOSDAQ:025900) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Dongwha EnterpriseLtd (KOSDAQ:025900) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Dongwha EnterpriseLtd is:

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

0.0031 = ₩5.0b ÷ (₩2.4t - ₩763b) (Based on the trailing twelve months to June 2024).

Thus, Dongwha EnterpriseLtd has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Forestry industry average of 5.4%.

Check out our latest analysis for Dongwha EnterpriseLtd

In the above chart we have measured Dongwha EnterpriseLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Dongwha EnterpriseLtd for free.

The Trend Of ROCE

On the surface, the trend of ROCE at Dongwha EnterpriseLtd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.3% from 7.1% five years ago. However it looks like Dongwha EnterpriseLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Dongwha EnterpriseLtd's ROCE

To conclude, we've found that Dongwha EnterpriseLtd is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 67% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 1 warning sign facing Dongwha EnterpriseLtd that you might find interesting.

While Dongwha EnterpriseLtd 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.