Dilip Buildcon (NSE:DBL) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Although, when we looked at Dilip Buildcon (NSE:DBL), it didn't seem to tick all of these boxes.

We've discovered 3 warning signs about Dilip Buildcon. View them for free.

What Is 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 Dilip Buildcon is:

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

0.12 = ₹15b ÷ (₹188b - ₹68b) (Based on the trailing twelve months to December 2024).

So, Dilip Buildcon has an ROCE of 12%. In isolation, that's a pretty standard return but against the Construction industry average of 16%, it's not as good.

See our latest analysis for Dilip Buildcon

Above you can see how the current ROCE for Dilip Buildcon compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Dilip Buildcon .

So How Is Dilip Buildcon's ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 17% five years ago, while the business's capital employed increased by 32%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Dilip Buildcon's earnings and if they change as a result from the capital raise.

The Bottom Line

In summary, Dilip Buildcon is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 78% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Dilip Buildcon does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those can't be ignored...

While Dilip Buildcon 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.