Returns On Capital At Dongil IndustriesLtd (KRX:004890) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Dongil IndustriesLtd (KRX:004890) 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 Dongil IndustriesLtd:

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

0.0053 = ₩2.0b ÷ (₩418b - ₩42b) (Based on the trailing twelve months to December 2020).

Thus, Dongil IndustriesLtd has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 4.9%.

See our latest analysis for Dongil IndustriesLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dongil IndustriesLtd's ROCE against it's prior returns. If you'd like to look at how Dongil IndustriesLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Dongil IndustriesLtd's ROCE Trend?

Things have been pretty stable at Dongil IndustriesLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Dongil IndustriesLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

We can conclude that in regards to Dongil IndustriesLtd's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 36% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Dongil IndustriesLtd does have some risks, we noticed 3 warning signs (and 1 which is potentially serious) we think you should know about.

While Dongil IndustriesLtd 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. 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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