Yahoo Finance The Returns At Dalrymple Bay Infrastructure (ASX:DBI) Aren't Growing
Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Dalrymple Bay Infrastructure (ASX:DBI), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Dalrymple Bay Infrastructure:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.076 = AU$256m ÷ (AU$3.5b - AU$127m) (Based on the trailing twelve months to June 2023).
Thus, Dalrymple Bay Infrastructure has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 4.4% generated by the Infrastructure industry, it's much better.
See our latest analysis for Dalrymple Bay Infrastructure
Above you can see how the current ROCE for Dalrymple Bay Infrastructure 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 report on analyst forecasts for the company.
So How Is Dalrymple Bay Infrastructure's ROCE Trending?
The returns on capital haven't changed much for Dalrymple Bay Infrastructure in recent years. The company has employed 35% more capital in the last three years, and the returns on that capital have remained stable at 7.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
On a side note, Dalrymple Bay Infrastructure has done well to reduce current liabilities to 3.6% of total assets over the last three years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
In Conclusion...
In summary, Dalrymple Bay Infrastructure has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 21% over the last year. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
On a final note, we found 2 warning signs for Dalrymple Bay Infrastructure (1 is a bit unpleasant) you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
