Yahoo Finance DP Aircraft I (LON:DPA) Is Doing The Right Things To Multiply Its Share Price
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, DP Aircraft I (LON:DPA) looks quite promising in regards to its trends of return on capital.
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. To calculate this metric for DP Aircraft I, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = US$14m ÷ (US$159m - US$19m) (Based on the trailing twelve months to December 2022).
So, DP Aircraft I has an ROCE of 9.9%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 14%.
See our latest analysis for DP Aircraft I
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how DP Aircraft I has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From DP Aircraft I's ROCE Trend?
You'd find it hard not to be impressed with the ROCE trend at DP Aircraft I. The data shows that returns on capital have increased by 53% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, DP Aircraft I appears to been achieving more with less, since the business is using 70% 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.
What We Can Learn From DP Aircraft I's ROCE
In the end, DP Aircraft I has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 94% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
DP Aircraft I does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
While DP Aircraft I 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.
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