Returns On Capital Are Showing Encouraging Signs At Dalrymple Bay Infrastructure (ASX:DBI)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Dalrymple Bay Infrastructure (ASX:DBI) and its trend of ROCE, we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

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 Dalrymple Bay Infrastructure is:

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

0.072 = AU$239m ÷ (AU$3.4b - AU$120m) (Based on the trailing twelve months to December 2024).

Thus, Dalrymple Bay Infrastructure has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 5.8%.

See our latest analysis for Dalrymple Bay Infrastructure

Above you can see how the current ROCE for Dalrymple Bay Infrastructure 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 Dalrymple Bay Infrastructure for free.

What The Trend Of ROCE Can Tell Us

Dalrymple Bay Infrastructure's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 129% over the last four years. 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.

The Key Takeaway

To sum it up, Dalrymple Bay Infrastructure is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 144% total return over the last three years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for Dalrymple Bay Infrastructure you'll probably want to know about.

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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.