We Like These Underlying Trends At DAIHAN Scientific (KOSDAQ:131220)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 DAIHAN Scientific's (KOSDAQ:131220) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for DAIHAN Scientific, this is the formula:

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

0.087 = ₩3.2b ÷ (₩43b - ₩6.4b) (Based on the trailing twelve months to September 2020).

So, DAIHAN Scientific has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 5.6% generated by the Electronic industry, it's much better.

Check out our latest analysis for DAIHAN Scientific

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

What Can We Tell From DAIHAN Scientific's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 8.7%. The amount of capital employed has increased too, by 29%. So we're very much inspired by what we're seeing at DAIHAN Scientific thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 15%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From DAIHAN Scientific's ROCE

In summary, it's great to see that DAIHAN Scientific can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 158% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if DAIHAN Scientific can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for DAIHAN Scientific you'll probably want to know about.

While DAIHAN Scientific may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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