ESG Emirates Stallions Group PJSC's (ADX:ESG) Returns On Capital Not Reflecting Well On The Business

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think ESG Emirates Stallions Group PJSC (ADX:ESG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 ESG Emirates Stallions Group PJSC:

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

0.055 = د.إ147m ÷ (د.إ3.5b - د.إ801m) (Based on the trailing twelve months to September 2024).

So, ESG Emirates Stallions Group PJSC has an ROCE of 5.5%. On its own that's a low return, but compared to the average of 4.5% generated by the Industrials industry, it's much better.

View 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 covering ESG Emirates Stallions Group PJSC's past earnings, revenue and cash flow.

So How Is ESG Emirates Stallions Group PJSC's ROCE Trending?

When we looked at the ROCE trend at ESG Emirates Stallions Group PJSC, we didn't gain much confidence. To be more specific, ROCE has fallen from 23% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From ESG Emirates Stallions Group PJSC's ROCE

While returns have fallen for ESG Emirates Stallions Group PJSC in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 21% over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you want to know some of the risks facing ESG Emirates Stallions Group PJSC we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While ESG Emirates Stallions Group PJSC 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.