Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) Hasn't Managed To Accelerate Its Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So while Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) has a high ROCE right now, lets see what we can decipher from how returns are changing.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.30 = د.إ3.1b ÷ (د.إ20b - د.إ9.2b) (Based on the trailing twelve months to September 2024).

Therefore, Abu Dhabi National Oil Company for Distribution PJSC has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for Abu Dhabi National Oil Company for Distribution PJSC

In the above chart we have measured Abu Dhabi National Oil Company for Distribution PJSC's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in 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?

Over the past five years, Abu Dhabi National Oil Company for Distribution PJSC's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So it may not be a multi-bagger in the making, but given the decent 30% return on capital, it'd be difficult to find fault with the business's current operations. On top of that you'll notice that Abu Dhabi National Oil Company for Distribution PJSC has been paying out a large portion (85%) of earnings in the form of dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

On a separate but related note, it's important to know that Abu Dhabi National Oil Company for Distribution PJSC has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Abu Dhabi National Oil Company for Distribution PJSC's ROCE

While Abu Dhabi National Oil Company for Distribution PJSC has impressive profitability from its capital, it isn't increasing that amount of capital. Although the market must be expecting these trends to improve because the stock has gained 54% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Abu Dhabi National Oil Company for Distribution PJSC, we've discovered 2 warning signs that you should be aware of.

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.