The Returns On Capital At Daebongls.Co.Ltd (KOSDAQ:078140) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Daebongls.Co.Ltd (KOSDAQ:078140) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Daebongls.Co.Ltd:

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

0.042 = ₩8.5b ÷ (₩230b - ₩26b) (Based on the trailing twelve months to September 2024).

So, Daebongls.Co.Ltd has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.5%.

See our latest analysis for Daebongls.Co.Ltd

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're interested in investigating Daebongls.Co.Ltd's past further, check out this free graph covering Daebongls.Co.Ltd's past earnings, revenue and cash flow.

What Can We Tell From Daebongls.Co.Ltd's ROCE Trend?

Unfortunately, the trend isn't great with ROCE falling from 8.8% five years ago, while capital employed has grown 142%. Usually this isn't ideal, but given Daebongls.Co.Ltd conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Daebongls.Co.Ltd's earnings and if they change as a result from the capital raise.

What We Can Learn From Daebongls.Co.Ltd's ROCE

In summary, Daebongls.Co.Ltd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 87% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 1 warning sign for Daebongls.Co.Ltd that we think you should be aware of.

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.