What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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, Diebold Nixdorf (NYSE:DBD) looks quite promising in regards to its trends of return on capital.

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 Diebold Nixdorf is:

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

0.10 = US$255m ÷ (US$3.8b - US$1.3b) (Based on the trailing twelve months to June 2024).

So, Diebold Nixdorf has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Tech industry average of 8.2% it's much better.

In the above chart we have measured Diebold Nixdorf's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Diebold Nixdorf for free.

The Trend Of ROCE

Diebold Nixdorf is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 106% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Diebold Nixdorf's ROCE

To sum it up, Diebold Nixdorf is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Diebold Nixdorf does have some risks, we noticed 3 warning signs (and 2 which are significant) we think you should know about.

While Diebold Nixdorf isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.