Returns Are Gaining Momentum At Dream Finders Homes (NYSE:DFH)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Dream Finders Homes (NYSE:DFH) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Dream Finders Homes:

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

0.14 = US$414m ÷ (US$3.3b - US$356m) (Based on the trailing twelve months to September 2024).

Thus, Dream Finders Homes has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.

Check out our latest analysis for Dream Finders Homes

In the above chart we have measured Dream Finders Homes' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Dream Finders Homes .

The Trend Of ROCE

We like the trends that we're seeing from Dream Finders Homes. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 649% more capital is being employed now too. So we're very much inspired by what we're seeing at Dream Finders Homes thanks to its ability to profitably reinvest capital.

Our Take On Dream Finders Homes' ROCE

To sum it up, Dream Finders Homes has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 25% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Dream Finders Homes (of which 2 don't sit too well with us!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.