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Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we take a look at a few key financial metrics. First, we would like to identify a growth to recover on capital employed (ROCE) and at the same time, a based capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. So when we looked Ad Technology Bhd (KLSE: DNONCE) and its ROCE trend, we really liked what we saw.
Understanding Return on Capital Employed (ROCE)
If you’ve never worked with ROCE before, it measures the “return†(profit before tax) that a business generates on capital employed in its business. To calculate this metric for D’nonce Technology Bhd, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.088 = RM15m ÷ (RM207m – RM35m) (Based on the last twelve months up to July 2021).
Therefore, D’nonce Technology Bhd has a ROCE of 8.8%. In absolute terms, this is a low yield and it is also below the packaging industry average of 12%.
See our latest review for D’nonce Technology Bhd
Historical performance is a great place to start when looking for a stock. So above you can see the gauge of D’nonce Technology Bhd’s ROCE compared to its past returns. If you want to delve into the earnings, revenue and cash flow history of D’nonce Technology Bhd, check out these free graphics here.
What can we say about the ROCE trend of D’nonce Technology Bhd?
D’nonce Technology Bhd has recently become profitable, so their past investments seem to be paying off. About five years ago, the company was generating losses but things have turned around as it now earns 8.8% on its capital. Not only that, but the business is using 67% more capital than before, but that’s to be expected of a business trying to achieve profitability. We like this trend because it tells us that the company has profitable reinvestment opportunities, and if it keeps moving forward it can lead to multi-bagger performance.
On a related note, the ratio of the company’s current liabilities to total assets declined to 17%, fundamentally reducing its funding from short-term creditors or suppliers. This tells us that D’nonce Technology Bhd has increased its returns without depending on the increase in its short-term liabilities, which we are very happy with.
Our opinion on D’nonce Technology Bhd’s ROCE
Overall, D’nonce Technology Bhd is getting a big boost from us thanks in large part to the fact that he is now profitable and is reinvesting in his business. Investors may not yet be impressed with the favorable underlying trends, as over the past five years, the stock has only returned 8.9% to shareholders. With that in mind, we would dig deeper into this stock in case there were more traits that could cause it to multiply in the long term.
On a separate note, we have found 3 warning signs for D’nonce Technology Bhd you will probably want to know more.
Although D’nonce Technology Bhd does not generate the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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