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

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 Oil Company for Distribution PJSC's (ADX:ADNOCDIST) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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)

0.29 = د.إ3.1b ÷ (د.إ19b - د.إ8.9b) (Based on the trailing twelve months to March 2024).

So, Abu Dhabi National Oil Company for Distribution PJSC has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 11%.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Abu Dhabi National Oil Company for Distribution PJSC .

What Does the ROCE Trend For Abu Dhabi National Oil Company for Distribution PJSC Tell Us?

Abu Dhabi National Oil Company for Distribution PJSC is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 29% in that same time. 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. 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 46% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line On Abu Dhabi National Oil Company for Distribution PJSC's ROCE

To bring it all together, Abu Dhabi National Oil Company for Distribution PJSC has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 61% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Abu Dhabi National Oil Company for Distribution PJSC does have some risks though, and we've spotted 2 warning signs for Abu Dhabi National Oil Company for Distribution PJSC that you might be interested in.

Abu Dhabi National Oil Company for Distribution PJSC is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

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