What Do The Returns On Capital At Dongbang Transport Logistics (KRX:004140) Tell Us?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after briefly looking over the numbers, we don't think Dongbang Transport Logistics (KRX:004140) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. 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)

0.076 = ₩17b ÷ (₩499b - ₩269b) (Based on the trailing twelve months to September 2020).

Therefore, Dongbang Transport Logistics has an ROCE of 7.6%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 5.1%.

View 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, revenue and cash flow of Dongbang Transport Logistics, check out these free graphs here.

So How Is Dongbang Transport Logistics' ROCE Trending?

Things have been pretty stable at Dongbang Transport Logistics, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Dongbang Transport Logistics doesn't end up being a multi-bagger in a few years time.

Another thing to note, Dongbang Transport Logistics has a high ratio of current liabilities to total assets of 54%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In a nutshell, Dongbang Transport Logistics has been trudging along with the same returns from the same amount of capital over the last five years. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 451% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Dongbang Transport Logistics (of which 1 shouldn't be ignored!) that you should know about.

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. 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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