Returns On Capital Are Showing Encouraging Signs At Dong Yang Steel Pipe (KRX:008970)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Dong Yang Steel Pipe (KRX:008970) looks quite promising in regards to its trends of return on capital.

Understanding 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 Dong Yang Steel Pipe:

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

0.059 = ₩7.2b ÷ (₩192b - ₩70b) (Based on the trailing twelve months to September 2024).

Thus, Dong Yang Steel Pipe has an ROCE of 5.9%. On its own that's a low return, but compared to the average of 4.4% generated by the Metals and Mining industry, it's much better.

See our latest analysis for Dong Yang Steel Pipe

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dong Yang Steel Pipe's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Dong Yang Steel Pipe.

The Trend Of ROCE

Dong Yang Steel Pipe has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.9% on its capital. Not only that, but the company is utilizing 39% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

In summary, it's great to see that Dong Yang Steel Pipe has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 30% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 3 warning signs for Dong Yang Steel Pipe (1 shouldn't be ignored) you should be aware of.

While Dong Yang Steel Pipe isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.