Returns On Capital Are Showing Encouraging Signs At Daemyoung EnergyLtd (KOSDAQ:389260)

Did you know there are some financial metrics that can provide clues of a potential 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. 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 Daemyoung EnergyLtd (KOSDAQ:389260) so let's look a bit deeper.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Daemyoung EnergyLtd is:

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

0.036 = ₩9.8b ÷ (₩370b - ₩99b) (Based on the trailing twelve months to December 2024).

Thus, Daemyoung EnergyLtd has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 6.1%.

View our latest analysis for Daemyoung EnergyLtd

Above you can see how the current ROCE for Daemyoung EnergyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Daemyoung EnergyLtd for free.

What Does the ROCE Trend For Daemyoung EnergyLtd Tell Us?

The fact that Daemyoung EnergyLtd is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.6% on its capital. In addition to that, Daemyoung EnergyLtd is employing 104% 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Daemyoung EnergyLtd's ROCE

Long story short, we're delighted to see that Daemyoung EnergyLtd's reinvestment activities have paid off and the company is now profitable. Since the stock has only returned 2.3% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to continue researching Daemyoung EnergyLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.