The Returns At Emirates Driving Company P.J.S.C (ADX:DRIVE) Aren't Growing

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. That's why when we briefly looked at Emirates Driving Company P.J.S.C's (ADX:DRIVE) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Emirates Driving Company P.J.S.C, this is the formula:

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

0.18 = د.إ200m ÷ (د.إ1.2b - د.إ56m) (Based on the trailing twelve months to September 2023).

Thus, Emirates Driving Company P.J.S.C has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 9.3% it's much better.

See our latest analysis for Emirates Driving Company 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 Emirates Driving Company P.J.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 69% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Emirates Driving Company P.J.S.C has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Emirates Driving Company P.J.S.C's ROCE

In the end, Emirates Driving Company P.J.S.C has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 682% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Emirates Driving Company P.J.S.C, we've discovered 2 warning signs that you should be aware of.

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.