Returns On Capital At Dubai Refreshment (P.J.S.C.) (DFM:DRC) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Dubai Refreshment (P.J.S.C.) (DFM:DRC), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Dubai Refreshment (P.J.S.C.), this is the formula:

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

0.088 = د.إ91m ÷ (د.إ1.3b - د.إ263m) (Based on the trailing twelve months to March 2023).

So, Dubai Refreshment (P.J.S.C.) has an ROCE of 8.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.7%.

See our latest analysis for Dubai Refreshment (P.J.S.C.)

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 Dubai Refreshment (P.J.S.C.)'s past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Dubai Refreshment (P.J.S.C.)'s ROCE Trending?

Over the past five years, Dubai Refreshment (P.J.S.C.)'s ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Dubai Refreshment (P.J.S.C.) doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Dubai Refreshment (P.J.S.C.)'s ROCE

We can conclude that in regards to Dubai Refreshment (P.J.S.C.)'s returns on capital employed and the trends, there isn't much change to report on. Yet to long term shareholders the stock has gifted them an incredible 120% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 2 warning signs for Dubai Refreshment (P.J.S.C.) (1 is a bit unpleasant) you should be aware of.

While Dubai Refreshment (P.J.S.C.) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.