Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) Is Achieving High Returns On Its Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) looks great, so lets see what the trend can tell us.

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. Analysts use this formula to calculate it for Abu Dhabi National Oil Company for Distribution PJSC:

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

0.28 = د.إ2.9b ÷ (د.إ17b - د.إ6.6b) (Based on the trailing twelve months to March 2023).

Thus, Abu Dhabi National Oil Company for Distribution PJSC has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 10%.

See our latest analysis for Abu Dhabi National Oil Company for Distribution PJSC

Above you can see how the current ROCE for Abu Dhabi National Oil Company for Distribution PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Abu Dhabi National Oil Company for Distribution PJSC

What The Trend Of ROCE Can Tell Us

Abu Dhabi National Oil Company for Distribution PJSC's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 36% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Abu Dhabi National Oil Company for Distribution PJSC's ROCE

In summary, we're delighted to see that Abu Dhabi National Oil Company for Distribution PJSC has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 127% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Abu Dhabi National Oil Company for Distribution PJSC can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Abu Dhabi National Oil Company for Distribution PJSC (including 1 which is potentially serious) .

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.