Diebold Nixdorf (NYSE:DBD) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Diebold Nixdorf (NYSE:DBD) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Diebold Nixdorf:

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

0.051 = US$85m ÷ (US$3.3b - US$1.7b) (Based on the trailing twelve months to March 2022).

Therefore, Diebold Nixdorf has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 9.6%.

View our latest analysis for Diebold Nixdorf

Above you can see how the current ROCE for Diebold Nixdorf compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Diebold Nixdorf.

What Does the ROCE Trend For Diebold Nixdorf Tell Us?

Diebold Nixdorf has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 143%. The company is now earning US$0.05 per dollar of capital employed. In regards to capital employed, Diebold Nixdorf appears to been achieving more with less, since the business is using 51% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 50% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line

In summary, it's great to see that Diebold Nixdorf has been able to turn things around and earn higher returns on lower amounts of capital. Although the company may be facing some issues elsewhere since the stock has plunged 85% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

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

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

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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.