We are seeing these trends at DIC India (NSE: DICIND)

To find a multi-bagger stock, what are the underlying trends to look for in a business? First of all, we want to see a return on capital employed (ROCE) which increases, and on the other hand, a based capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. In light of this, when we looked DIC India (NSE: DICIND) and its ROCE trend, we weren’t exactly thrilled.

Understanding Return on Capital Employed (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. To calculate this metric for DIC India, here is the formula:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.036 = ₹ 140m ÷ (₹ 5.3 billion – ₹ 1.4 billion) (Based on the last twelve months up to December 2020).

So, DIC India has a ROCE of 3.6%. In absolute terms, this is low efficiency and it also by-produces the chemical industry average of 15%.

Check out our latest review for DIC India

Historical performance is a great place to start when researching a stock, above you can see the gauge of DIC India’s ROCE against its previous returns. If you want to delve into DIC India earnings, income and cash flow history, check out these free graphics here.

So what is the ROCE trend of DIC India?

When we looked at the ROCE trend at DIC India, we didn’t gain much confidence. To be more precise, ROCE has increased by 15% over the past five years. And since incomes have fallen while employing more capital, we would be cautious. If this were to continue, you might consider a business that tries to reinvest for growth, but is actually losing market share since sales haven’t increased.

The bottom line

We’re a little worried about DIC India, because despite deploying more capital in the business, both return on that capital and sales have fallen. So it’s no surprise that the stock has fallen 20% in the past five years, so it looks like investors are recognizing these changes. With underlying trends not being great in these areas, we would consider looking elsewhere.

Since virtually every business faces risk, it’s worth knowing what they are, and we’ve spotted 3 warning signs for DIC India (1 of which makes us a little uncomfortable!) that you should know.

While DIC India does not currently achieve the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

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