Daimler Truck Holding (ETR:DTG) Will Be Hoping To Turn Its Returns On Capital Around
Did you know that there are financial metrics that can give clues to potential multi-baggers? In a perfect world we would love to see a company invest more capital in its business and that the returns from that capital are increasing. This shows that the business is reinvesting profits at increasing rates. We looked at Daimler Truck Holding (ETR.DTG) and its ROCE trends, we weren’t exactly thrilled.
What is Return on Capital Employed (ROCE), and How Does It Work?
ROCE, or Pre-tax Profits from Capital Employed in a Company, is a measure of the company’s ability to generate pre-tax profits. This formula is used by analysts to calculate ROCE for Daimler Truck Holding.
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.063 = €2.9b ÷ (€65b – €20b) Based on the trailing twelve month period ending in September 2022.
Therefore, Daimler Truck Holding boasts a ROCE score of 6.3% Absolute terms, it’s a low return. It also under-performs Machinery industry average of 9.1%.
Our latest analysis of Daimler Truck Holdings
Below you can see how the current ROCE of Daimler Truck Holding compares with its previous returns on capital. However, there are only so many things you can infer from the past. You can check out our Forecasts page to see what analysts have in store for the future. Free report for Daimler Truck Holding.
The Trend Of ROCE
The trend in ROCE movements for Daimler Truck Holding is not great. ROCE has declined from 8.6% in the last three years to be more precise. However, it seems that the business is pursuing growth, despite the short term risks. If the capital generated by increased returns is returned to shareholders, the business will be in the long-term better.
As a side note, Daimler Truck Holding reduced its current liabilities to 30%. We could also link this to the drop in ROCE. This can also reduce the risk of the business’s operations as its suppliers and short-term creditors now fund less of them. Some argue that this decreases the business’ ability to generate ROCE as it now funds more of its operations with its own money.
The Bottom Line
Summary: Despite lower returns in the short-term, we are encouraged to see Daimler Truck Holding reinvesting for growth. This has resulted in higher sales. These trends haven’t seem to have had an impact on returns as the stock’s return has been mostly flat over this year. We recommend further research on this stock to discover more about the business’s fundamentals.
You might be interested in the following information if you continue your research on Daimler Truck Holding. 1 warning sign This is what our analysis revealed.
Daimler Truck Holding may not be earning the best return, but this is what you should see. Free List of companies that have solid balance sheets and high returns on equity.
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