Our Take On The Returns On Capital At Dongsung (KRX:102260)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. 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 briefly looking over the numbers, we don't think Dongsung (KRX:102260) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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 Dongsung, this is the formula:

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

0.12 = ₩63b ÷ (₩860b - ₩325b) (Based on the trailing twelve months to September 2020).

Thus, Dongsung has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Chemicals industry.

View our latest analysis for Dongsung

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

What The Trend Of ROCE Can Tell Us

Over the past five years, Dongsung's ROCE and capital employed have both remained mostly flat. 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 Dongsung to be a multi-bagger going forward.

The Key Takeaway

In a nutshell, Dongsung has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Dongsung we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While Dongsung 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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