Here's What To Make Of Dottikon Es Holding's (VTX:DESN) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Dottikon Es Holding (VTX:DESN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. Analysts use this formula to calculate it for Dottikon Es Holding:

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

0.095 = CHF71m ÷ (CHF858m - CHF106m) (Based on the trailing twelve months to March 2022).

Thus, Dottikon Es Holding has an ROCE of 9.5%. On its own, that's a low figure but it's around the 12% average generated by the Chemicals industry.

View our latest analysis for Dottikon Es Holding

Above you can see how the current ROCE for Dottikon Es Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Dottikon Es Holding Tell Us?

The returns on capital haven't changed much for Dottikon Es Holding in recent years. The company has consistently earned 9.5% for the last five years, and the capital employed within the business has risen 121% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Dottikon Es Holding's ROCE

As we've seen above, Dottikon Es Holding's returns on capital haven't increased but it is reinvesting in the business. Yet to long term shareholders the stock has gifted them an incredible 193% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Dottikon Es Holding does have some risks though, and we've spotted 1 warning sign for Dottikon Es Holding that you might be interested in.

While Dottikon Es Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.