Capital Allocation Trends At DREAMINSIGHT Co.Ltd (KOSDAQ:362990) Aren't Ideal

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. In light of that, when we looked at DREAMINSIGHT Co.Ltd (KOSDAQ:362990) and its ROCE trend, we weren't exactly thrilled.

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Understanding 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. The formula for this calculation on DREAMINSIGHT Co.Ltd is:

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

0.045 = ₩1.8b ÷ (₩50b - ₩10b) (Based on the trailing twelve months to December 2024).

Thus, DREAMINSIGHT Co.Ltd has an ROCE of 4.5%. In absolute terms, that's a low return but it's around the Media industry average of 4.5%.

See our latest analysis for DREAMINSIGHT Co.Ltd

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're interested in investigating DREAMINSIGHT Co.Ltd's past further, check out this free graph covering DREAMINSIGHT Co.Ltd's past earnings, revenue and cash flow .

How Are Returns Trending?

On the surface, the trend of ROCE at DREAMINSIGHT Co.Ltd doesn't inspire confidence. Over the last one year, returns on capital have decreased to 4.5% from 16% one year ago. 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.

The Bottom Line On DREAMINSIGHT Co.Ltd's ROCE

Bringing it all together, while we're somewhat encouraged by DREAMINSIGHT Co.Ltd's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 58% over the last three years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think DREAMINSIGHT Co.Ltd has the makings of a multi-bagger.

If you want to know some of the risks facing DREAMINSIGHT Co.Ltd we've found 5 warning signs (1 can't be ignored!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.