Advertisement
U.S. markets close in 2 hours 8 minutes
  • S&P 500

    5,252.80
    +4.31 (+0.08%)
     
  • Dow 30

    39,786.84
    +26.76 (+0.07%)
     
  • Nasdaq

    16,382.12
    -17.40 (-0.11%)
     
  • Russell 2000

    2,124.45
    +10.10 (+0.48%)
     
  • Crude Oil

    82.98
    +1.63 (+2.00%)
     
  • Gold

    2,241.00
    +28.30 (+1.28%)
     
  • Silver

    24.95
    +0.20 (+0.80%)
     
  • EUR/USD

    1.0799
    -0.0030 (-0.28%)
     
  • 10-Yr Bond

    4.2080
    +0.0120 (+0.29%)
     
  • dólar/libra

    1.2626
    -0.0012 (-0.10%)
     
  • USD/JPY

    151.3730
    +0.1270 (+0.08%)
     
  • Bitcoin USD

    70,746.53
    +1,693.60 (+2.45%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Daktronics' (NASDAQ:DAKT) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Daktronics' (NASDAQ:DAKT) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Daktronics:

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

0.052 = US$12m ÷ (US$396m - US$163m) (Based on the trailing twelve months to July 2021).

Therefore, Daktronics has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 9.8%.

View our latest analysis for Daktronics

roce
roce

Historical performance is a great place to start when researching a stock so above you can see the gauge for Daktronics' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Daktronics, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Daktronics has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 163% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a separate but related note, it's important to know that Daktronics has a current liabilities to total assets ratio of 41%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Daktronics' ROCE

To bring it all together, Daktronics has done well to increase the returns it's generating from its capital employed. Given the stock has declined 39% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Daktronics does come with some risks, and we've found 1 warning sign that you should be aware of.

While Daktronics 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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Advertisement