Yahoo Finance Returns At DRA Global (ASX:DRA) Are On The Way Up
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at DRA Global (ASX:DRA) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 DRA Global is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = AU$41m ÷ (AU$545m - AU$222m) (Based on the trailing twelve months to June 2023).
Therefore, DRA Global has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.
View our latest analysis for DRA Global
Historical performance is a great place to start when researching a stock so above you can see the gauge for DRA Global's ROCE against it's prior returns. If you're interested in investigating DRA Global's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
The trends we've noticed at DRA Global are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 26%. So we're very much inspired by what we're seeing at DRA Global thanks to its ability to profitably reinvest capital.
On a separate but related note, it's important to know that DRA Global has a current liabilities to total assets ratio of 41%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Bottom Line
All in all, it's terrific to see that DRA Global is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 20% over the last year, 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 DRA Global we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.
While DRA Global may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
