DeviceENG.CO.Ltd (KOSDAQ:187870) Knows How To Allocate Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of DeviceENG.CO.Ltd (KOSDAQ:187870) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on DeviceENG.CO.Ltd is:

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

0.40 = ₩38b ÷ (₩168b - ₩73b) (Based on the trailing twelve months to September 2020).

Thus, DeviceENG.CO.Ltd has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

Check out our latest analysis for DeviceENG.CO.Ltd

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

How Are Returns Trending?

Investors would be pleased with what's happening at DeviceENG.CO.Ltd. The data shows that returns on capital have increased substantially over the last five years to 40%. Basically the business is earning more per dollar of capital invested and in addition to that, 263% more capital is being employed now too. So we're very much inspired by what we're seeing at DeviceENG.CO.Ltd thanks to its ability to profitably reinvest capital.

On a side note, DeviceENG.CO.Ltd's current liabilities are still rather high at 44% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On DeviceENG.CO.Ltd's ROCE

All in all, it's terrific to see that DeviceENG.CO.Ltd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 329% to shareholders over the last three years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing DeviceENG.CO.Ltd that you might find interesting.

DeviceENG.CO.Ltd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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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