Investors Could Be Concerned With Domiki Kritis' (ATH:DOMIK) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after investigating Domiki Kritis (ATH:DOMIK), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Domiki Kritis, this is the formula:

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

0.036 = €710k ÷ (€27m - €7.3m) (Based on the trailing twelve months to June 2024).

Therefore, Domiki Kritis has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 7.3%.

See our latest analysis for Domiki Kritis

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Domiki Kritis' past further, check out this free graph covering Domiki Kritis' past earnings, revenue and cash flow.

What Does the ROCE Trend For Domiki Kritis Tell Us?

On the surface, the trend of ROCE at Domiki Kritis doesn't inspire confidence. To be more specific, ROCE has fallen from 8.2% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, Domiki Kritis has decreased its current liabilities to 27% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Domiki Kritis' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Domiki Kritis. And the stock has done incredibly well with a 1,139% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Domiki Kritis does have some risks though, and we've spotted 3 warning signs for Domiki Kritis that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.