Returns At DTXS Silk Road Investment Holdings (HKG:620) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, DTXS Silk Road Investment Holdings (HKG:620) looks quite promising in regards to its trends of return on capital.

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 DTXS Silk Road Investment Holdings is:

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

0.12 = HK$191m ÷ (HK$3.8b - HK$2.1b) (Based on the trailing twelve months to June 2023).

Thus, DTXS Silk Road Investment Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 4.3% generated by the Retail Distributors industry.

Check out our latest analysis for DTXS Silk Road Investment Holdings

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

The Trend Of ROCE

We're delighted to see that DTXS Silk Road Investment Holdings is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 12% on its capital. And unsurprisingly, like most companies trying to break into the black, DTXS Silk Road Investment Holdings is utilizing 102% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

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. The current liabilities has increased to 56% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Bottom Line On DTXS Silk Road Investment Holdings' ROCE

Overall, DTXS Silk Road Investment Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Although the company may be facing some issues elsewhere since the stock has plunged 89% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing: We've identified 4 warning signs with DTXS Silk Road Investment Holdings (at least 2 which are significant) , and understanding these would certainly be useful.

While DTXS Silk Road Investment Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.