The Trends At Dongwon Systems (KRX:014820) That You Should Know About

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Dongwon Systems (KRX:014820), it didn't seem to tick all of these boxes.

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. To calculate this metric for Dongwon Systems, this is the formula:

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

0.095 = ₩87b ÷ (₩1.3t - ₩357b) (Based on the trailing twelve months to September 2020).

Therefore, Dongwon Systems has an ROCE of 9.5%. On its own that's a low return, but compared to the average of 5.7% generated by the Packaging industry, it's much better.

View our latest analysis for Dongwon Systems

In the above chart we have measured Dongwon Systems' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Dongwon Systems here for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Dongwon Systems, 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Dongwon Systems to be a multi-bagger going forward.

The Bottom Line

In summary, Dongwon Systems isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 57% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know about the risks facing Dongwon Systems, we've discovered 3 warning signs that you should be aware of.

While Dongwon Systems 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. 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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