Returns On Capital Are Showing Encouraging Signs At Abu Dhabi National Hotels Company PJSC (ADX:ADNH)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Abu Dhabi National Hotels Company PJSC's (ADX:ADNH) returns on capital, so let's have a look.

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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. The formula for this calculation on Abu Dhabi National Hotels Company PJSC is:

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

0.042 = د.إ496m ÷ (د.إ14b - د.إ1.7b) (Based on the trailing twelve months to March 2025).

Thus, Abu Dhabi National Hotels Company PJSC has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 13%.

See our latest analysis for Abu Dhabi National Hotels Company PJSC

Historical performance is a great place to start when researching a stock so above you can see the gauge for Abu Dhabi National Hotels Company PJSC's ROCE against it's prior returns. If you're interested in investigating Abu Dhabi National Hotels Company PJSC's past further, check out this free graph covering Abu Dhabi National Hotels Company PJSC's past earnings, revenue and cash flow.

How Are Returns Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 375% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Abu Dhabi National Hotels Company PJSC's ROCE

In summary, we're delighted to see that Abu Dhabi National Hotels Company PJSC has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 188% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Abu Dhabi National Hotels Company PJSC can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Abu Dhabi National Hotels Company PJSC and understanding it should be part of your investment process.

While Abu Dhabi National Hotels Company PJSC 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.