What We Make Of Doppler's (ATH:DOPPLER) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Doppler's (ATH:DOPPLER) returns on capital, so let's have a look.

What is 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. The formula for this calculation on Doppler is:

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).

So, Doppler has an ROCE of 7.5%. On its own, that's a low figure but it's around the 9.0% average generated by the Machinery industry.

View 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're interested in investigating Doppler's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

You'd find it hard not to be impressed with the ROCE trend at Doppler. The figures show that over the last five years, returns on capital have grown by 31%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Doppler appears to been achieving more with less, since the business is using 36% less capital to run its operation. 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 a nutshell, we're pleased to see that Doppler has been able to generate higher returns from less capital. Given the stock has declined 58% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Doppler does come with some risks, and we've found 2 warning signs that you should be aware of.

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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