Capital Investment Trends At Dixon Technologies (India) (NSE:DIXON) Look Strong

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at Dixon Technologies (India) (NSE:DIXON), we liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Dixon Technologies (India), this is the formula:

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

0.30 = ₹2.2b ÷ (₹23b - ₹15b) (Based on the trailing twelve months to December 2020).

So, Dixon Technologies (India) has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See our latest analysis for Dixon Technologies (India)

Above you can see how the current ROCE for Dixon Technologies (India) 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 report for Dixon Technologies (India).

What Does the ROCE Trend For Dixon Technologies (India) Tell Us?

Dixon Technologies (India) deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 30% and the business has deployed 363% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 68% of total assets, this reported ROCE would probably be less than30% because total capital employed would be higher.The 30% ROCE could be even lower if current liabilities weren't 68% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.

The Bottom Line On Dixon Technologies (India)'s ROCE

In short, we'd argue Dixon Technologies (India) has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 518% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Dixon Technologies (India) that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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