We Like These Underlying Return On Capital Trends At Dromeas (ATH:DROME)

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Dromeas (ATH:DROME) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Dromeas:

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

0.063 = €3.0m ÷ (€63m - €16m) (Based on the trailing twelve months to June 2024).

So, Dromeas has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 11%.

See our latest analysis for Dromeas

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

How Are Returns Trending?

Dromeas has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 92% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Dromeas' ROCE

To sum it up, Dromeas is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 16% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Dromeas, we've spotted 3 warning signs, and 1 of them can't be ignored.

While Dromeas 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.