Capital Allocation Trends At Duk San NeoluxLtd (KOSDAQ:213420) Aren't Ideal

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Duk San NeoluxLtd (KOSDAQ:213420), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Duk San NeoluxLtd:

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

0.11 = ₩45b ÷ (₩440b - ₩27b) (Based on the trailing twelve months to September 2024).

Thus, Duk San NeoluxLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Semiconductor industry.

Check out our latest analysis for Duk San NeoluxLtd

In the above chart we have measured Duk San NeoluxLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Duk San NeoluxLtd .

What Does the ROCE Trend For Duk San NeoluxLtd Tell Us?

When we looked at the ROCE trend at Duk San NeoluxLtd, we didn't gain much confidence. Over the last three years, returns on capital have decreased to 11% from 17% three years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Duk San NeoluxLtd's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Duk San NeoluxLtd. In light of this, the stock has only gained 13% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you're still interested in Duk San NeoluxLtd it's worth checking out our FREE intrinsic value approximation for A213420 to see if it's trading at an attractive price in other respects.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.