Dongil Technology (KOSDAQ:032960) Will Be Hoping To Turn Its Returns On Capital Around

What underlying fundamental trends can indicate that a company might be in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Dongil Technology (KOSDAQ:032960), we've spotted some signs that it could be struggling, so let's investigate.

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. To calculate this metric for Dongil Technology, this is the formula:

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

0.0036 = ₩191m ÷ (₩58b - ₩4.4b) (Based on the trailing twelve months to December 2020).

Therefore, Dongil Technology has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.8%.

Check out our latest analysis for Dongil Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dongil Technology's ROCE against it's prior returns. If you'd like to look at how Dongil Technology has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Dongil Technology's ROCE Trending?

In terms of Dongil Technology's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 3.3% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Dongil Technology becoming one if things continue as they have.

The Bottom Line On Dongil Technology's ROCE

In summary, it's unfortunate that Dongil Technology is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 23% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to know some of the risks facing Dongil Technology we've found 4 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Dongil Technology 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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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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