India
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IT
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NSEI:DSSL

Under The Bonnet, Dynacons Systems & Solutions' (NSE:DSSL) Returns Look Impressive

May 30, 2023

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 the ROCE trend of Dynacons Systems & Solutions (NSE:DSSL) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Dynacons Systems & Solutions, this is the formula:

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

0.44 = ₹556m ÷ (₹4.0b - ₹2.8b) (Based on the trailing twelve months to March 2023).

Therefore, Dynacons Systems & Solutions has an ROCE of 44%. In absolute terms that's a great return and it's even better than the IT industry average of 15%.

View our latest analysis for Dynacons Systems & Solutions

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 Dynacons Systems & Solutions 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

Investors would be pleased with what's happening at Dynacons Systems & Solutions. The data shows that returns on capital have increased substantially over the last five years to 44%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 408%. So we're very much inspired by what we're seeing at Dynacons Systems & Solutions thanks to its ability to profitably reinvest capital.

On a side note, Dynacons Systems & Solutions' current liabilities are still rather high at 69% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Dynacons Systems & Solutions' 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 Dynacons Systems & Solutions has. And a remarkable 1,109% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Dynacons Systems & Solutions can keep these trends up, it could have a bright future ahead.

If you want to continue researching Dynacons Systems & Solutions, you might be interested to know about the 2 warning signs that our analysis has discovered.

Dynacons Systems & Solutions is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.