Is Daejung Chemicals & MetalsLtd (KOSDAQ:120240) Likely To Turn Things Around?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after investigating Daejung Chemicals & MetalsLtd (KOSDAQ:120240), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 Daejung Chemicals & MetalsLtd:

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

0.076 = ₩10b ÷ (₩160b - ₩30b) (Based on the trailing twelve months to September 2020).

Therefore, Daejung Chemicals & MetalsLtd has an ROCE of 7.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.0%.

Check out our latest analysis for Daejung Chemicals & MetalsLtd

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

So How Is Daejung Chemicals & MetalsLtd's ROCE Trending?

The returns on capital haven't changed much for Daejung Chemicals & MetalsLtd in recent years. The company has consistently earned 7.6% for the last five years, and the capital employed within the business has risen 49% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Daejung Chemicals & MetalsLtd's ROCE

In conclusion, Daejung Chemicals & MetalsLtd has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 144% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, Daejung Chemicals & MetalsLtd does come with some risks, and we've found 3 warning signs that 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. 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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