D&C MediaLtd (KOSDAQ:263720) Might Be Having Difficulty Using Its Capital Effectively

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. 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 D&C MediaLtd (KOSDAQ:263720), it didn't seem to tick all of these boxes.

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. The formula for this calculation on D&C MediaLtd is:

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

0.042 = ₩3.5b ÷ (₩99b - ₩16b) (Based on the trailing twelve months to December 2023).

Therefore, D&C MediaLtd has an ROCE of 4.2%. In absolute terms, that's a low return but it's around the Media industry average of 5.1%.

See our latest analysis for D&C MediaLtd

Above you can see how the current ROCE for D&C MediaLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering D&C MediaLtd for free.

How Are Returns Trending?

On the surface, the trend of ROCE at D&C MediaLtd doesn't inspire confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 4.2%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On D&C MediaLtd's ROCE

To conclude, we've found that D&C MediaLtd is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 53% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 3 warning signs facing D&C MediaLtd that you might find interesting.

While D&C MediaLtd 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. 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.