Daldrup & Söhne (ETR:4DS) Is Very Good At Capital Allocation

If you're looking for a multi-bagger, there's a few things to 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Daldrup & Söhne (ETR:4DS) looks great, so lets see what the trend can tell us.

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

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 Daldrup & Söhne, this is the formula:

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

0.21 = €6.5m ÷ (€37m - €6.3m) (Based on the trailing twelve months to June 2025).

Therefore, Daldrup & Söhne has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Energy Services industry average of 12%.

Check out our latest analysis for Daldrup & Söhne

In the above chart we have measured Daldrup & Söhne's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Daldrup & Söhne .

So How Is Daldrup & Söhne's ROCE Trending?

Daldrup & Söhne has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 21% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

One more thing to note, Daldrup & Söhne has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Daldrup & Söhne's ROCE

In summary, we're delighted to see that Daldrup & Söhne has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Daldrup & Söhne can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Daldrup & Söhne that we think you should be aware of.

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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.