Should You Be Excited About DB Hitek's (KRX:000990) 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in DB Hitek's (KRX:000990) returns on capital, so let's have a look.

What is 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 DB Hitek is:

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

0.29 = ₩257b ÷ (₩1.2t - ₩259b) (Based on the trailing twelve months to September 2020).

Thus, DB Hitek has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

View our latest analysis for DB Hitek

Above you can see how the current ROCE for DB Hitek 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 DB Hitek here for free.

What Can We Tell From DB Hitek's ROCE Trend?

Investors would be pleased with what's happening at DB Hitek. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, DB Hitek has decreased current liabilities to 22% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

To sum it up, DB Hitek has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 275% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 DB Hitek that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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