Return Trends At DKSH Holding (VTX:DKSH) Aren't Appealing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at DKSH Holding (VTX:DKSH) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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 DKSH Holding, this is the formula:

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

0.12 = CHF312m ÷ (CHF5.5b - CHF3.0b) (Based on the trailing twelve months to June 2024).

Thus, DKSH Holding has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

See our latest analysis for DKSH Holding

In the above chart we have measured DKSH Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for DKSH Holding .

So How Is DKSH Holding's ROCE Trending?

Over the past five years, DKSH Holding's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if DKSH Holding doesn't end up being a multi-bagger in a few years time. On top of that you'll notice that DKSH Holding has been paying out a large portion (64%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

Another thing to note, DKSH Holding has a high ratio of current liabilities to total assets of 55%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In summary, DKSH Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 49% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

DKSH Holding could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for DKSH on our platform quite valuable.

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.