Returns On Capital Are Showing Encouraging Signs At Domiki Kritis (ATH:DOMIK)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Domiki Kritis (ATH:DOMIK) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Domiki Kritis:

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

0.074 = €1.3m ÷ (€23m - €5.1m) (Based on the trailing twelve months to December 2021).

Therefore, Domiki Kritis has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 9.7%.

See our latest analysis for Domiki Kritis

Historical performance is a great place to start when researching a stock so above you can see the gauge for Domiki Kritis' ROCE against it's prior returns. If you'd like to look at how Domiki Kritis has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Domiki Kritis' ROCE Trend?

Domiki Kritis has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 7.4% on its capital. In addition to that, Domiki Kritis is employing 38% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Domiki Kritis has decreased current liabilities to 22% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

Overall, Domiki Kritis gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 734% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Domiki Kritis can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Domiki Kritis (including 1 which shouldn't be ignored) .

While Domiki Kritis 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.