What Do The Returns On Capital At DIGITAL CHOSUN (KOSDAQ:033130) Tell Us?

What are the early trends we should look for to identify a stock that could 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at DIGITAL CHOSUN (KOSDAQ:033130) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on DIGITAL CHOSUN is:

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

0.03 = ₩2.3b ÷ (₩85b - ₩6.0b) (Based on the trailing twelve months to September 2020).

Thus, DIGITAL CHOSUN has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.6%.

Check out our latest analysis for DIGITAL CHOSUN

Historical performance is a great place to start when researching a stock so above you can see the gauge for DIGITAL CHOSUN's ROCE against it's prior returns. If you're interested in investigating DIGITAL CHOSUN's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of DIGITAL CHOSUN's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.6% over the last five years. However it looks like DIGITAL CHOSUN might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, DIGITAL CHOSUN is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 34% in the last five years. Therefore based on the analysis done in this article, we don't think DIGITAL CHOSUN has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for DIGITAL CHOSUN (of which 1 is significant!) that you should know about.

While DIGITAL CHOSUN 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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