Here's What To Make Of Daewon Media's (KOSDAQ:048910) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at Daewon Media (KOSDAQ:048910), it didn't seem to tick all of these boxes.

What is 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. To calculate this metric for Daewon Media, this is the formula:

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

0.056 = ₩6.3b ÷ (₩144b - ₩32b) (Based on the trailing twelve months to September 2020).

Therefore, Daewon Media has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 7.6%.

View our latest analysis for Daewon Media

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'd like to look at how Daewon Media has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Daewon Media's ROCE Trend?

There are better returns on capital out there than what we're seeing at Daewon Media. The company has consistently earned 5.6% for the last five years, and the capital employed within the business has risen 47% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Daewon Media's ROCE

In conclusion, Daewon Media has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 26% over the last five years, investors may not be too optimistic on this trend improving either. 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.

On a separate note, we've found 2 warning signs for Daewon Media you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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