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. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Dodla Dairy.
Return On Capital Employed (ROCE): What Is It?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Dodla Dairy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.21 = ₹2.9b ÷ (₹17b – ₹2.9b) (Based on the trailing twelve months to September 2024).
Thus, Dodla Dairy has an ROCE of 21%. That’s a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
What Does the ROCE Trend For Dodla Dairy Tell Us?
We like the trends that we’re seeing from Dodla Dairy. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. 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 142%. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.
The Bottom Line On Dodla Dairy’s ROCE
In summary, it’s great to see that Dodla Dairy can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. In light of that, we think it’s worth looking further into this stock because if Dodla Dairy can keep these trends up, it could have a bright future ahead.
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