Dilip Buildcon's (NSE:DBL) Returns On Capital Not Reflecting Well On The Business

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 investigating Dilip Buildcon (NSE:DBL), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Dilip Buildcon:

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

0.11 = ₹13b ÷ (₹188b - ₹68b) (Based on the trailing twelve months to September 2024).

So, Dilip Buildcon has an ROCE of 11%. In isolation, that's a pretty standard return but against the Construction industry average of 15%, it's not as good.

View 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Dilip Buildcon .

How Are Returns Trending?

We weren't thrilled with the trend because Dilip Buildcon's ROCE has reduced by 33% over the last five years, while the business employed 32% more capital. That being said, Dilip Buildcon raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. 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.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Dilip Buildcon's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 11% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing, we've spotted 2 warning signs facing Dilip Buildcon that you might find interesting.

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.