Dareway SoftwareLtd (SHSE:688579) Will Be Hoping To Turn Its Returns On Capital Around

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Dareway SoftwareLtd (SHSE:688579) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. To calculate this metric for Dareway SoftwareLtd, this is the formula:

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

0.043 = CN¥61m ÷ (CN¥1.7b - CN¥306m) (Based on the trailing twelve months to March 2024).

Therefore, Dareway SoftwareLtd has an ROCE of 4.3%. In absolute terms, that's a low return, but it's much better than the Software industry average of 3.1%.

See our latest analysis for Dareway SoftwareLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dareway SoftwareLtd's ROCE against it's prior returns. If you're interested in investigating Dareway SoftwareLtd's past further, check out this free graph covering Dareway SoftwareLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Dareway SoftwareLtd Tell Us?

In terms of Dareway SoftwareLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 10% over the last five years. However it looks like Dareway SoftwareLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Dareway SoftwareLtd is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 38% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a separate note, we've found 1 warning sign for Dareway SoftwareLtd you'll probably want to know about.

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.