Dynemic Products (NSE:DYNPRO) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Dynemic Products (NSE:DYNPRO), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Dynemic Products, this is the formula:

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

0.11 = ₹314m ÷ (₹4.1b - ₹1.3b) (Based on the trailing twelve months to March 2022).

Thus, Dynemic Products has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Chemicals industry average it falls behind.

View our latest analysis for Dynemic Products

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 Dynemic Products has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at Dynemic Products doesn't inspire confidence. To be more specific, ROCE has fallen from 27% over the last five 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Dynemic Products' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Dynemic Products. And long term investors must be optimistic going forward because the stock has returned a huge 210% to shareholders in the last three years. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you want to continue researching Dynemic Products, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Dynemic Products 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.