Dalekovod D.D's (ZGSE:DLKV) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Dalekovod D.D (ZGSE:DLKV) looks quite promising in regards to its trends of return on capital.

What is 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. The formula for this calculation on Dalekovod D.D is:

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

0.14 = Kn56m ÷ (Kn967m - Kn580m) (Based on the trailing twelve months to June 2021).

Therefore, Dalekovod D.D has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Construction industry.

View our latest analysis for Dalekovod D.D

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dalekovod D.D's ROCE against it's prior returns. If you're interested in investigating Dalekovod D.D'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 Dalekovod D.D. The figures show that over the last five years, returns on capital have grown by 203%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 58% less capital than it was five years ago. Dalekovod D.D may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 60% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

From what we've seen above, Dalekovod D.D has managed to increase it's returns on capital all the while reducing it's capital base. Although the company may be facing some issues elsewhere since the stock has plunged 94% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Dalekovod D.D (of which 2 make us uncomfortable!) that you should know about.

While Dalekovod D.D isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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