Returns On Capital Are A Standout For Dover Motorsports (NYSE:DVD)
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Dover Motorsports' (NYSE:DVD) look very promising so lets take 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 Dover Motorsports:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = US$23m ÷ (US$110m - US$14m) (Based on the trailing twelve months to June 2021).
Therefore, Dover Motorsports has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 8.1%.
Check out our latest analysis for Dover Motorsports
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Dover Motorsports, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from Dover Motorsports. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 28% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From Dover Motorsports' ROCE
To sum it up, Dover Motorsports has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 54% return over the last five years. In light of that, we think it's worth looking further into this stock because if Dover Motorsports can keep these trends up, it could have a bright future ahead.
If you want to know some of the risks facing Dover Motorsports we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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.
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