Returns On Capital Are Showing Encouraging Signs At Daidong Electronics (KRX:008110)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Daidong Electronics' (KRX:008110) returns on capital, so let's have a look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Daidong Electronics is:

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

0.0056 = ₩1.4b ÷ (₩250b - ₩6.0b) (Based on the trailing twelve months to December 2023).

Thus, Daidong Electronics has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Electronic industry average of 6.0%.

See our latest analysis for Daidong Electronics

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're interested in investigating Daidong Electronics' past further, check out this free graph covering Daidong Electronics' past earnings, revenue and cash flow.

What Does the ROCE Trend For Daidong Electronics Tell Us?

Daidong Electronics has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.6% which is a sight for sore eyes. In addition to that, Daidong Electronics is employing 60% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

In summary, it's great to see that Daidong Electronics has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 286% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Daidong Electronics we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

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.

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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.