Alpha Dhabi Holding PJSC (ADX:ALPHADHABI) May Have Issues Allocating Its Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Alpha Dhabi Holding PJSC (ADX:ALPHADHABI), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Alpha Dhabi Holding PJSC:

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

0.08 = د.إ10b ÷ (د.إ185b - د.إ55b) (Based on the trailing twelve months to March 2025).

So, Alpha Dhabi Holding PJSC has an ROCE of 8.0%. In absolute terms, that's a low return, but it's much better than the Industrials industry average of 3.8%.

Check out our latest analysis for Alpha Dhabi Holding PJSC

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're interested in investigating Alpha Dhabi Holding PJSC's past further, check out this free graph covering Alpha Dhabi Holding PJSC's past earnings, revenue and cash flow.

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 13% five years ago, while capital employed has grown 8,323%. Usually this isn't ideal, but given Alpha Dhabi Holding PJSC conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Alpha Dhabi Holding PJSC's earnings and if they change as a result from the capital raise.

On a related note, Alpha Dhabi Holding PJSC has decreased its current liabilities to 30% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Alpha Dhabi Holding PJSC's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Alpha Dhabi Holding PJSC. And there could be an opportunity here if other metrics look good too, because the stock has declined 49% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Alpha Dhabi Holding PJSC, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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.