Returns On Capital - An Important Metric For D.P. Wires (NSE:DPWIRES)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at D.P. Wires' (NSE:DPWIRES) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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 D.P. Wires is:

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

0.23 = ₹204m ÷ (₹1.1b - ₹174m) (Based on the trailing twelve months to September 2019).

Therefore, D.P. Wires has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 9.4%.

View our latest analysis for D.P. Wires

Historical performance is a great place to start when researching a stock so above you can see the gauge for D.P. Wires' ROCE against it's prior returns. If you're interested in investigating D.P. Wires' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

D.P. Wires is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The amount of capital employed has increased too, by 295%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 16%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On D.P. Wires' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what D.P. Wires has. And with a respectable 55% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for D.P. Wires (of which 1 is significant!) that you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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