Is There More Growth In Store For Daesung Energy's (KRX:117580) Returns On Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Daesung Energy (KRX:117580) and its trend of ROCE, we really liked what we saw.

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

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 Daesung Energy is:

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

0.055 = ₩23b ÷ (₩588b - ₩165b) (Based on the trailing twelve months to September 2020).

Thus, Daesung Energy has an ROCE of 5.5%. In absolute terms, that's a low return, but it's much better than the Gas Utilities industry average of 3.8%.

See our latest analysis for Daesung Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Daesung Energy's ROCE against it's prior returns. If you're interested in investigating Daesung Energy's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Daesung Energy Tell Us?

Daesung Energy has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last two years, the ROCE has climbed 47% in that same time. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Daesung Energy's ROCE

As discussed above, Daesung Energy appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Considering the stock has delivered 3.8% 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 exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we found 2 warning signs for Daesung Energy (1 is a bit unpleasant) you should be aware of.

While Daesung Energy 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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