ESG Emirates Stallions Group PJSC (ADX:ESG) Will Want To Turn Around Its Return Trends

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at ESG Emirates Stallions Group PJSC (ADX:ESG) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for ESG Emirates Stallions Group PJSC:

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

0.05 = د.إ95m ÷ (د.إ2.2b - د.إ291m) (Based on the trailing twelve months to June 2023).

So, ESG Emirates Stallions Group PJSC has an ROCE of 5.0%. On its own that's a low return, but compared to the average of 3.0% generated by the Industrials industry, it's much better.

See our latest analysis for ESG Emirates Stallions Group 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 ESG Emirates Stallions Group PJSC's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From ESG Emirates Stallions Group PJSC's ROCE Trend?

On the surface, the trend of ROCE at ESG Emirates Stallions Group PJSC doesn't inspire confidence. Over the last four years, returns on capital have decreased to 5.0% from 16% four years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that ESG Emirates Stallions Group PJSC is reinvesting for growth and has higher sales as a result. These trends don't appear to have influenced returns though, because the total return from the stock has been mostly flat over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a separate note, we've found 2 warning signs for ESG Emirates Stallions Group PJSC you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.