Investors Will Want DPC Dash's (HKG:1405) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 when we looked at DPC Dash (HKG:1405) and its trend of ROCE, we really liked what we saw.

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Understanding 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 DPC Dash:

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

0.046 = CN¥154m ÷ (CN¥4.9b - CN¥1.5b) (Based on the trailing twelve months to December 2024).

Therefore, DPC Dash has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.0%.

View our latest analysis for DPC Dash

In the above chart we have measured DPC Dash's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for DPC Dash .

What The Trend Of ROCE Can Tell Us

DPC Dash has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.6% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, DPC Dash is utilizing 80% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

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. Effectively this means that suppliers or short-term creditors are now funding 31% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On DPC Dash's ROCE

In summary, it's great to see that DPC Dash has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 28% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for DPC Dash you'll probably want to know about.

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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.