The Return Trends At Digidrive Distributors (NSE:DIGIDRIVE) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Digidrive Distributors (NSE:DIGIDRIVE) and its trend of ROCE, we really liked what we saw.

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What Is 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 Digidrive Distributors, this is the formula:

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

0.0021 = ₹8.0m ÷ (₹4.0b - ₹83m) (Based on the trailing twelve months to December 2024).

So, Digidrive Distributors has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 6.2%.

Check out our latest analysis for Digidrive Distributors

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

The Trend Of ROCE

Digidrive Distributors has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses one year ago, but now it's earning 0.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Digidrive Distributors is utilizing 100% more capital than it was one year ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Overall, Digidrive Distributors gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 16% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

Digidrive Distributors does have some risks though, and we've spotted 1 warning sign for Digidrive Distributors that you might be interested in.

While Digidrive Distributors may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.