Stock Analysis

Our Take On The Returns On Capital At Dubai Investments PJSC (DFM:DIC)

DFM:DIC
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Dubai Investments PJSC (DFM:DIC), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Dubai Investments PJSC is:

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

0.029 = د.إ511m ÷ (د.إ22b - د.إ3.6b) (Based on the trailing twelve months to September 2020).

Thus, Dubai Investments PJSC has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Industrials industry average of 5.6%.

Check out our latest analysis for Dubai Investments PJSC

roce
DFM:DIC Return on Capital Employed December 22nd 2020

In the above chart we have measured Dubai Investments PJSC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Dubai Investments PJSC.

So How Is Dubai Investments PJSC's ROCE Trending?

The returns on capital haven't changed much for Dubai Investments PJSC in recent years. Over the past five years, ROCE has remained relatively flat at around 2.9% and the business has deployed 42% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In summary, Dubai Investments PJSC has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 1.1% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Dubai Investments PJSC does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

If you want to search for solid companies with great earnings, check out this free list 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. 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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