Dymatic ChemicalsInc (SZSE:002054) Will Be Hoping To Turn Its Returns On Capital Around
If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after briefly looking over the numbers, we don't think Dymatic ChemicalsInc (SZSE:002054) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding 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. The formula for this calculation on Dymatic ChemicalsInc is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.015 = CN¥78m ÷ (CN¥6.7b - CN¥1.4b) (Based on the trailing twelve months to September 2024).
Therefore, Dymatic ChemicalsInc has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 5.6%.
Check out our latest analysis for Dymatic ChemicalsInc
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're interested in investigating Dymatic ChemicalsInc's past further, check out this free graph covering Dymatic ChemicalsInc's past earnings, revenue and cash flow.
How Are Returns Trending?
On the surface, the trend of ROCE at Dymatic ChemicalsInc doesn't inspire confidence. Around five years ago the returns on capital were 5.1%, but since then they've fallen to 1.5%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.
The Bottom Line
In summary, we're somewhat concerned by Dymatic ChemicalsInc's diminishing returns on increasing amounts of capital. Investors must expect better things on the horizon though because the stock has risen 17% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.
If you'd like to know more about Dymatic ChemicalsInc, we've spotted 4 warning signs, and 2 of them are a bit concerning.
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.
About SZSE:002054
Dymatic ChemicalsInc
Engages in the research and development, production, and sale of textile chemicals, leather chemicals, and petroleum fine chemicals in China.
Proven track record low.
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