Digital Power CommunicationsLtd (KRX:026890) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Digital Power CommunicationsLtd (KRX:026890) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Digital Power CommunicationsLtd is:

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

0.17 = ₩31b ÷ (₩249b - ₩64b) (Based on the trailing twelve months to December 2020).

Therefore, Digital Power CommunicationsLtd has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Electronic industry.

See our latest analysis for Digital Power CommunicationsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Digital Power CommunicationsLtd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Digital Power CommunicationsLtd, check out these free graphs here.

The Trend Of ROCE

Digital Power CommunicationsLtd is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Digital Power CommunicationsLtd 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 with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Digital Power CommunicationsLtd does have some risks though, and we've spotted 1 warning sign for Digital Power CommunicationsLtd that you might be interested in.

While Digital Power CommunicationsLtd 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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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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