Returns On Capital At EMSTEEL Building Materials PJSC (ADX:EMSTEEL) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at EMSTEEL Building Materials PJSC (ADX:EMSTEEL), it didn't seem to tick all of these boxes.

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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. To calculate this metric for EMSTEEL Building Materials PJSC, this is the formula:

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

0.033 = د.إ314m ÷ (د.إ11b - د.إ1.9b) (Based on the trailing twelve months to June 2025).

So, EMSTEEL Building Materials PJSC has an ROCE of 3.3%. Even though it's in line with the industry average of 3.4%, it's still a low return by itself.

Check out our latest analysis for EMSTEEL Building Materials PJSC

Historical performance is a great place to start when researching a stock so above you can see the gauge for EMSTEEL Building Materials PJSC's ROCE against it's prior returns. If you'd like to look at how EMSTEEL Building Materials PJSC has performed in the past in other metrics, you can view this free graph of EMSTEEL Building Materials PJSC's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of EMSTEEL Building Materials PJSC's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 3.3% and the business has deployed 371% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, EMSTEEL Building Materials PJSC has done well to reduce current liabilities to 17% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

In summary, EMSTEEL Building Materials PJSC has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 125% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

EMSTEEL Building Materials PJSC does have some risks though, and we've spotted 1 warning sign for EMSTEEL Building Materials PJSC that you might be interested in.

While EMSTEEL Building Materials PJSC isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.