Investors Could Be Concerned With Dong Yang Steel Pipe's (KRX:008970) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Dong Yang Steel Pipe (KRX:008970), we don't think it's current trends fit the mold of a multi-bagger.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Dong Yang Steel Pipe, this is the formula:

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

0.039 = ₩5.1b ÷ (₩190b - ₩61b) (Based on the trailing twelve months to March 2025).

Thus, Dong Yang Steel Pipe has an ROCE of 3.9%. On its own, that's a low figure but it's around the 4.8% average generated by the Metals and Mining industry.

Check out our latest analysis for Dong Yang Steel Pipe

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 Dong Yang Steel Pipe's past further, check out this free graph covering Dong Yang Steel Pipe's past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Dong Yang Steel Pipe, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.9% from 6.4% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

From the above analysis, we find it rather worrisome that returns on capital and sales for Dong Yang Steel Pipe have fallen, meanwhile the business is employing more capital than it was five years ago. Yet despite these concerning fundamentals, the stock has performed strongly with a 57% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Like most companies, Dong Yang Steel Pipe does come with some risks, and we've found 2 warning signs that you should be aware of.

While Dong Yang Steel Pipe 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.