DCM Nouvelle (NSE:DCMNVL) Is Experiencing Growth In Returns On Capital

Simply Wall St · 10/15 00:39

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at DCM Nouvelle (NSE:DCMNVL) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on DCM Nouvelle is:

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

0.052 = ₹218m ÷ (₹7.6b - ₹3.5b) (Based on the trailing twelve months to June 2024).

Therefore, DCM Nouvelle has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Luxury industry average of 11%.

Check out our latest analysis for DCM Nouvelle

roce
NSEI:DCMNVL Return on Capital Employed October 15th 2024

Historical performance is a great place to start when researching a stock so above you can see the gauge for DCM Nouvelle's ROCE against it's prior returns. If you'd like to look at how DCM Nouvelle has performed in the past in other metrics, you can view this free graph of DCM Nouvelle's past earnings, revenue and cash flow.

So How Is DCM Nouvelle's ROCE Trending?

The fact that DCM Nouvelle is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 5.2% on its capital. Not only that, but the company is utilizing 107% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, DCM Nouvelle's current liabilities are still rather high at 45% of total assets. 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 On DCM Nouvelle's ROCE

Long story short, we're delighted to see that DCM Nouvelle's reinvestment activities have paid off and the company is now profitable. And a remarkable 648% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing DCM Nouvelle we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While DCM Nouvelle 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.