Dine Brands Global (NYSE:DIN) Shareholders Will Want The ROCE Trajectory To Continue

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Dine Brands Global (NYSE:DIN) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Dine Brands Global is:

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

0.14 = US$181m ÷ (US$1.7b - US$410m) (Based on the trailing twelve months to March 2024).

Thus, Dine Brands Global has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Hospitality industry.

Check out our latest analysis for Dine Brands Global

Above you can see how the current ROCE for Dine Brands Global compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Dine Brands Global .

What Can We Tell From Dine Brands Global's ROCE Trend?

Dine Brands Global has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 29%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 28% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

From what we've seen above, Dine Brands Global has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 54% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Dine Brands Global we've found 3 warning signs (2 shouldn't be ignored!) that you should be aware of before investing here.

While Dine Brands Global isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com