Can Doppler (ATH:DOPPLER) Continue To Grow Its Returns On Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Doppler (ATH:DOPPLER) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Doppler:

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

0.075 = €671k ÷ (€22m - €13m) (Based on the trailing twelve months to June 2020).

Thus, Doppler has an ROCE of 7.5%. On its own, that's a low figure but it's around the 8.4% average generated by the Machinery industry.

Check out our latest analysis for Doppler

Historical performance is a great place to start when researching a stock so above you can see the gauge for Doppler's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Doppler, check out these free graphs here.

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Doppler. We found that the returns on capital employed over the last five years have risen by 31%. The company is now earning €0.07 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 36% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 60% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Doppler's ROCE

In summary, it's great to see that Doppler has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 50% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Doppler, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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