To find multi-bagger stock, what are the underlying trends we need to look for in a business? First, we would like to identify a growth to return to on capital employed (ROCE) and at the same time, a based capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits into the business and generating higher returns. So when we looked Digital box (LON: DBOX) and its trend of ROCE, we really liked what we saw.
What is Return on Employee Capital (ROCE)?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. Analysts use this formula to calculate it for Digitalbox:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.01 = British £ 139,000 ÷ (£ 14million – UK £ 423,000) (Based on the last twelve months up to June 2021).
So, Digitalbox has a ROCE of 1.0%. At the end of the day, that’s a low return, and it’s below the interactive media and services industry average of 15%.
Discover our latest analysis for Digitalbox
Above you can see how Digitalbox’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Digitalbox.
What is the trend for returns?
We are delighted to see that Digitalbox is reaping the rewards of its investments and is now generating pre-tax profits. About two years ago, the company was making losses, but things have turned around as it now earns 1.0% on its equity. And unsurprisingly, like most companies trying to break into the dark, Digitalbox is using 20% more capital than two years ago. This may tell us that the company has many reinvestment opportunities capable of generating higher returns.
The bottom line
To the delight of most shareholders, Digitalbox has now returned to profitability. And with a respectable 90% attributed to those who held the shares over the past year, you could argue that these developments are starting to get the attention they deserve. That being said, we still believe that promising fundamentals mean the company deserves additional due diligence.
Like most businesses, Digitalbox comes with certain risks, and we have found 4 warning signs that you need to be aware of.
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.