Returns At Daimler Truck Holding (ETR:DTG) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Having said that, from a first glance at Daimler Truck Holding ( ETR:DTG ) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Daimler Truck Holding is:

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

0.095 = €4.3b ÷ (€67b - €22b) (Based on the trailing twelve months to March 2023) .

Therefore, Daimler Truck Holding has an ROCE of 9.5%. On its own, that's a low figure but it's around the 11% average generated by the Machinery industry.

See our latest analysis for Daimler Truck Holding

Above you can see how the current ROCE for Daimler Truck Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Daimler Truck Holding .

So How Is Daimler Truck Holding's ROCE Trending?

There are better returns on capital out there than what we're seeing at Daimler Truck Holding. The company has consistently earned 9.5% for the last four years, and the capital employed within the business has risen 48% 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.

Our Take On Daimler Truck Holding's ROCE

Long story short, while Daimler Truck Holding has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 41% over the last year, 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.

Daimler Truck Holding does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.