Yahoo Finance Returns At Digitalbox (LON:DBOX) Are On The Way Up
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Digitalbox (LON:DBOX) so let's look a bit deeper.
Understanding 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. Analysts use this formula to calculate it for Digitalbox:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = UK£745k ÷ (UK£14m - UK£477k) (Based on the trailing twelve months to June 2023).
So, Digitalbox has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 9.2%.
View our latest analysis for Digitalbox
Above you can see how the current ROCE for Digitalbox compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Digitalbox here for free.
What Can We Tell From Digitalbox's ROCE Trend?
Digitalbox has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 5.6% on its capital, because four years ago it was incurring losses. While returns have increased, the amount of capital employed by Digitalbox has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.
Our Take On Digitalbox's ROCE
In summary, we're delighted to see that Digitalbox has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 30% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you want to know some of the risks facing Digitalbox we've found 4 warning signs (1 is concerning!) that you should be aware of before investing here.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
