Explore Domino's Pizza Enterprises's Fair Values from the Community and select yours

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after glancing at the trends within Domino's Pizza Enterprises (ASX:DMP), we weren't too hopeful.

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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. The formula for this calculation on Domino's Pizza Enterprises is:

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

0.081 = AU$165m ÷ (AU$2.7b - AU$632m) (Based on the trailing twelve months to December 2024).

Therefore, Domino's Pizza Enterprises has an ROCE of 8.1%. In absolute terms, that's a low return but it's around the Hospitality industry average of 8.7%.

See our latest analysis for Domino's Pizza Enterprises ASX:DMP Return on Capital Employed August 6th 2025

In the above chart we have measured Domino's Pizza Enterprises' 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 Domino's Pizza Enterprises  for free.

What Can We Tell From Domino's Pizza Enterprises' ROCE Trend?

There is reason to be cautious about Domino's Pizza Enterprises, given the returns are trending downwards. To be more specific, the ROCE was 11% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Domino's Pizza Enterprises becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Domino's Pizza Enterprises is generating lower returns from the same amount of capital. We expect this has contributed to the stock plummeting 73% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

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One more thing to note, we've identified  4 warning signs  with Domino's Pizza Enterprises and understanding these should be part of your investment process.

If you want to search for solid companies with great earnings, check out this freelist of companies with good balance sheets and impressive returns on equity.

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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.

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