Capital Allocation Trends At DM-KER Zártköruen Muködo Részvénytársaság (BUSE:DMKER) Aren't Ideal

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating DM-KER Zártköruen Muködo Részvénytársaság (BUSE:DMKER), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for DM-KER Zártköruen Muködo Részvénytársaság, this is the formula:

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

0.076 = Ft381m ÷ (Ft12b - Ft7.1b) (Based on the trailing twelve months to December 2021).

Therefore, DM-KER Zártköruen Muködo Részvénytársaság has an ROCE of 7.6%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 15%.

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

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how DM-KER Zártköruen Muködo Részvénytársaság has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is DM-KER Zártköruen Muködo Részvénytársaság's ROCE Trending?

When we looked at the ROCE trend at DM-KER Zártköruen Muködo Részvénytársaság, we didn't gain much confidence. To be more specific, ROCE has fallen from 26% 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. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, DM-KER Zártköruen Muködo Részvénytársaság's current liabilities are still rather high at 59% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

While returns have fallen for DM-KER Zártköruen Muködo Részvénytársaság in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 29% over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you want to know some of the risks facing DM-KER Zártköruen Muködo Részvénytársaság we've found 5 warning signs (4 are a bit unpleasant!) that you should be aware of before investing here.

While DM-KER Zártköruen 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.