Investors Shouldn't Overlook D-BOX Technologies' (TSE:DBO) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Speaking of which, we noticed some great changes in D-BOX Technologies' (TSE:DBO) returns on capital, so let's have a look.

We've discovered 1 warning sign about D-BOX Technologies. View them for free.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for D-BOX Technologies, this is the formula:

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

0.21 = CA$4.3m ÷ (CA$28m - CA$7.2m) (Based on the trailing twelve months to December 2024).

Thus, D-BOX Technologies has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 13%.

View our latest analysis for D-BOX Technologies

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how D-BOX Technologies has performed in the past in other metrics, you can view this free graph of D-BOX Technologies' past earnings, revenue and cash flow.

How Are Returns Trending?

Shareholders will be relieved that D-BOX Technologies has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 21% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Key Takeaway

To bring it all together, D-BOX Technologies has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if D-BOX Technologies can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing D-BOX Technologies, we've discovered 1 warning sign that you should be aware of.

D-BOX Technologies is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.