Should We Be Excited About The Trends Of Returns At D.I (KRX:003160)?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at D.I (KRX:003160) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for D.I:

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

0.024 = ₩4.2b ÷ (₩227b - ₩53b) (Based on the trailing twelve months to September 2020).

Therefore, D.I has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.8%.

See our latest analysis for D.I

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 want to delve into the historical earnings, revenue and cash flow of D.I, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at D.I. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 2.4%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On D.I's ROCE

In conclusion, D.I has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 21% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching D.I, you might be interested to know about the 2 warning signs that our analysis has discovered.

While D.I isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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