DM-KER Nyilvánosan Muködo Részvénytársaság (BUSE:DMKER) Might Be Having Difficulty Using Its Capital Effectively

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think DM-KER Nyilvánosan Muködo Részvénytársaság (BUSE:DMKER) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on DM-KER Nyilvánosan Muködo Részvénytársaság is:

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

0.12 = Ft586m ÷ (Ft12b - Ft7.4b) (Based on the trailing twelve months to June 2022).

Therefore, DM-KER Nyilvánosan Muködo Részvénytársaság has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Trade Distributors industry average it falls behind.

Check out our latest analysis for DM-KER Nyilvánosan Muködo Részvénytársaság

Historical performance is a great place to start when researching a stock so above you can see the gauge for DM-KER Nyilvánosan Muködo Részvénytársaság's ROCE against it's prior returns. If you'd like to look at how DM-KER Nyilvánosan Muködo Részvénytársaság has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at DM-KER Nyilvánosan Muködo Részvénytársaság doesn't inspire confidence. To be more specific, ROCE has fallen from 18% over the last two years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, DM-KER Nyilvánosan Muködo Részvénytársaság's current liabilities are still rather high at 59% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for DM-KER Nyilvánosan Muködo Részvénytársaság. But since the stock has dived 99% in the last three years, there could be other drivers that are influencing the business' outlook. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.

If you'd like to know more about DM-KER Nyilvánosan Muködo Részvénytársaság, we've spotted 5 warning signs, and 1 of them shouldn't be ignored.

While DM-KER Nyilvánosan Muködo Részvénytársaság 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.