D'nonce Technology Bhd (KLSE:DNONCE) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next 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. So on that note, D'nonce Technology Bhd (KLSE:DNONCE) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on D'nonce Technology Bhd is:

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

0.055 = RM12m ÷ (RM250m - RM36m) (Based on the trailing twelve months to March 2022).

Thus, D'nonce Technology Bhd has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Packaging industry average of 12%.

See our latest analysis for D'nonce Technology Bhd

Historical performance is a great place to start when researching a stock so above you can see the gauge for D'nonce Technology Bhd's ROCE against it's prior returns. If you'd like to look at how D'nonce Technology Bhd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is D'nonce Technology Bhd's ROCE Trending?

We're delighted to see that D'nonce Technology Bhd is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 5.5% which is a sight for sore eyes. In addition to that, D'nonce Technology Bhd is employing 111% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, D'nonce Technology Bhd has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

Overall, D'nonce Technology Bhd gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 60% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 4 warning signs facing D'nonce Technology Bhd that you might find interesting.

While D'nonce Technology Bhd 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.