Returns At Dongbang Transport Logistics (KRX:004140) Are On The Way Up

What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Dongbang Transport Logistics (KRX:004140) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for Dongbang Transport Logistics:

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

0.10 = ₩36b ÷ (₩614b - ₩267b) (Based on the trailing twelve months to March 2024).

So, Dongbang Transport Logistics has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Infrastructure industry.

See our latest analysis for Dongbang Transport Logistics

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

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Dongbang Transport Logistics. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 58%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 44%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line On Dongbang Transport Logistics' ROCE

In summary, it's great to see that Dongbang Transport Logistics 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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 68% return over the last five years. In light of that, we think it's worth looking further into this stock because if Dongbang Transport Logistics can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with Dongbang Transport Logistics (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

While Dongbang Transport Logistics 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. 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.