Investors Will Want ESG Emirates Stallions Group PJSC's (ADX:ESG) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in ESG Emirates Stallions Group PJSC's (ADX:ESG) returns on capital, so let's have a look.

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 ESG Emirates Stallions Group PJSC is:

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

0.11 = د.إ85m ÷ (د.إ1.1b - د.إ342m) (Based on the trailing twelve months to December 2022).

Thus, ESG Emirates Stallions Group PJSC has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 1.9% generated by the Industrials industry.

Check out our latest analysis for ESG Emirates Stallions Group PJSC

Historical performance is a great place to start when researching a stock so above you can see the gauge for ESG Emirates Stallions Group PJSC's ROCE against it's prior returns. 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 Does the ROCE Trend For ESG Emirates Stallions Group PJSC Tell Us?

We like the trends that we're seeing from ESG Emirates Stallions Group PJSC. Over the last four years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 77%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 30% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On ESG Emirates Stallions Group PJSC's ROCE

All in all, it's terrific to see that ESG Emirates Stallions Group PJSC is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 29% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching ESG Emirates Stallions Group PJSC, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.