Stock Analysis

Returns On Capital At Dubai Investments PJSC (DFM:DIC) Have Stalled

DFM:DIC
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Dubai Investments PJSC (DFM:DIC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Dubai Investments PJSC, this is the formula:

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

0.031 = د.إ550m ÷ (د.إ22b - د.إ4.0b) (Based on the trailing twelve months to December 2020).

Thus, Dubai Investments PJSC has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 5.1%.

Check out our latest analysis for Dubai Investments PJSC

roce
DFM:DIC Return on Capital Employed March 23rd 2021

Above you can see how the current ROCE for Dubai Investments PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Dubai Investments PJSC.

What Can We Tell From Dubai Investments PJSC's ROCE Trend?

There are better returns on capital out there than what we're seeing at Dubai Investments PJSC. Over the past five years, ROCE has remained relatively flat at around 3.1% and the business has deployed 39% 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 Bottom Line

Long story short, while Dubai Investments PJSC has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 9.0% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing: We've identified 4 warning signs with Dubai Investments PJSC (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

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. 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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