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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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. The formula for this calculation on Digitalbox is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.01 = UK£139k ÷ (UK£14m - UK£423k) (Based on the trailing twelve months to June 2021).
Therefore, Digitalbox has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 15%.
Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
The fact that Digitalbox is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses two years ago, but now it's earning 1.0% which is a sight for sore eyes. Not only that, but the company is utilizing 20% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In Conclusion...
To the delight of most shareholders, Digitalbox has now broken into profitability. And with a respectable 37% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Digitalbox can keep these trends up, it could have a bright future ahead.
On a final note, we've found 4 warning signs for Digitalbox that we think you should be aware of.