Daewoo Engineering & Construction (KRX:047040) Will Want To Turn Around Its Return Trends

Simply Wall St · 04/09 23:55

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Daewoo Engineering & Construction (KRX:047040) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Daewoo Engineering & Construction, this is the formula:

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

0.044 = ₩360b ÷ (₩13t - ₩4.5t) (Based on the trailing twelve months to December 2024).

So, Daewoo Engineering & Construction has an ROCE of 4.4%. In absolute terms, that's a low return but it's around the Construction industry average of 5.1%.

See our latest analysis for Daewoo Engineering & Construction

roce
KOSE:A047040 Return on Capital Employed April 9th 2025

In the above chart we have measured Daewoo Engineering & Construction's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Daewoo Engineering & Construction for free.

What Can We Tell From Daewoo Engineering & Construction's ROCE Trend?

On the surface, the trend of ROCE at Daewoo Engineering & Construction doesn't inspire confidence. Around five years ago the returns on capital were 8.9%, but since then they've fallen to 4.4%. However it looks like Daewoo Engineering & Construction might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a related note, Daewoo Engineering & Construction has decreased its current liabilities to 36% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Daewoo Engineering & Construction's ROCE

In summary, Daewoo Engineering & Construction is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 10% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Daewoo Engineering & Construction does have some risks, we noticed 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

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.