Returns On Capital At Dynemic Products (NSE:DYNPRO) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, the ROCE of Dynemic Products (NSE:DYNPRO) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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 Dynemic Products:

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

0.17 = ₹394m ÷ (₹2.7b - ₹462m) (Based on the trailing twelve months to December 2020).

Therefore, Dynemic Products has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 15%.

See our latest analysis for Dynemic Products

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dynemic Products' ROCE against it's prior returns. 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.

So How Is Dynemic Products' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 239% in that time. 17% is a pretty standard return, and it provides some comfort knowing that Dynemic Products has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 17% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Dynemic Products' ROCE

To sum it up, Dynemic Products has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 129% return they've received over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Dynemic Products (of which 1 makes us a bit uncomfortable!) that you should know about.

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. 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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