We Like These Underlying Trends At Dongbang Transport Logistics (KRX:004140)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Dongbang Transport Logistics' (KRX:004140) returns on capital, so let's have a look.

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

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 Dongbang Transport Logistics is:

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

0.092 = ₩19b ÷ (₩514b - ₩305b) (Based on the trailing twelve months to June 2020).

So, Dongbang Transport Logistics has an ROCE of 9.2%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 4.8%.

Check out our latest analysis for Dongbang Transport Logistics

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'd like to look at how Dongbang Transport Logistics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Dongbang Transport Logistics' ROCE Trending?

Dongbang Transport Logistics' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 33% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, Dongbang Transport Logistics' current liabilities are still rather high at 59% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Dongbang Transport Logistics' ROCE

To sum it up, Dongbang Transport Logistics is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 7.4% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Dongbang Transport Logistics does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While Dongbang Transport Logistics 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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