Deufol's (HMSE:DE10) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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, we've noticed some promising trends at Deufol (HMSE:DE10) so let's look a bit deeper.

We've discovered 5 warning signs about Deufol. View them for free.

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 Deufol, this is the formula:

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

0.059 = €13m ÷ (€277m - €57m) (Based on the trailing twelve months to December 2024).

Thus, Deufol has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Logistics industry average of 11%.

View our latest analysis for Deufol

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

What Can We Tell From Deufol's ROCE Trend?

Deufol has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 453% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To bring it all together, Deufol has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 55% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 5 warning signs for Deufol (1 is a bit unpleasant) you should be aware of.

While Deufol may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.