If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Dlg Exhibitions & Events (SHSE:600826) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Dlg Exhibitions & Events:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.051 = CN¥232m ÷ (CN¥5.9b - CN¥1.4b) (Based on the trailing twelve months to June 2023).

Thus, Dlg Exhibitions & Events has an ROCE of 5.1%. On its own, that's a low figure but it's around the 5.9% average generated by the Trade Distributors industry.

View our latest analysis for Dlg Exhibitions & Events

Above you can see how the current ROCE for Dlg Exhibitions & Events compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Dlg Exhibitions & Events here for free.

What Does the ROCE Trend For Dlg Exhibitions & Events Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. So we're very much inspired by what we're seeing at Dlg Exhibitions & Events thanks to its ability to profitably reinvest capital.

Our Take On Dlg Exhibitions & Events' ROCE

To sum it up, Dlg Exhibitions & Events has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 2 warning signs facing Dlg Exhibitions & Events that you might find interesting.

While Dlg Exhibitions & Events may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.