Delignit's (ETR:DLX) Returns On Capital Are Heading Higher

Published
December 15, 2021
XTRA:DLX
Source: Shutterstock

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Delignit (ETR:DLX) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Delignit:

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

0.16 = €4.7m ÷ (€40m - €11m) (Based on the trailing twelve months to June 2021).

Thus, Delignit has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 9.8% it's much better.

View our latest analysis for Delignit

roce
XTRA:DLX Return on Capital Employed December 15th 2021

In the above chart we have measured Delignit'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 report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Delignit. Over the last five years, returns on capital employed have risen substantially to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Delignit's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Delignit has. 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 Delignit can keep these trends up, it could have a bright future ahead.

Delignit does have some risks though, and we've spotted 1 warning sign for Delignit that you might be interested in.

While Delignit 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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About XTRA:DLX

Delignit

Delignit AG, together with its subsidiaries, engages in the development, production, and sale of ecological and wood-based materials and system solutions based on natural, renewable, and CO2 neutral raw material wood in Germany.

Excellent balance sheet with moderate growth potential.