Slowing Rates Of Return At Daimler Truck Holding (ETR:DTG) Leave Little Room For Excitement

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Daimler Truck Holding's (ETR:DTG) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Daimler Truck Holding, this is the formula:

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

0.10 = €4.8b ÷ (€69b - €22b) (Based on the trailing twelve months to June 2023).

Therefore, Daimler Truck Holding has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 11% generated by the Machinery industry.

Check out our latest analysis for Daimler Truck Holding

In the above chart we have measured Daimler Truck Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Daimler Truck Holding here for free.

What Can We Tell From Daimler Truck Holding's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 10% for the last four years, and the capital employed within the business has risen 48% in that time. 10% is a pretty standard return, and it provides some comfort knowing that Daimler Truck Holding has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

The main thing to remember is that Daimler Truck Holding has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 11% return if they held over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Daimler Truck Holding (of which 1 is concerning!) that you should know about.

While Daimler Truck Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.