Abu Dhabi National Oil Company for Distribution PJSC's (ADX:ADNOCDIST) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST), it does have a high ROCE right now, but lets see how returns are trending.

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. The formula for this calculation on Abu Dhabi National Oil Company for Distribution PJSC is:

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

0.27 = د.إ2.7b ÷ (د.إ18b - د.إ8.0b) (Based on the trailing twelve months to September 2023).

Therefore, Abu Dhabi National Oil Company for Distribution PJSC has an ROCE of 27%. 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'd like to see what analysts are forecasting going forward, you should check out our free report for Abu Dhabi National Oil Company for Distribution PJSC.

How Are Returns Trending?

Things have been pretty stable at Abu Dhabi National Oil Company for Distribution PJSC, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So it may not be a multi-bagger in the making, but given the decent 27% return on capital, it'd be difficult to find fault with the business's current operations. That being the case, it makes sense that Abu Dhabi National Oil Company for Distribution PJSC has been paying out 90% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

Another thing to note, Abu Dhabi National Oil Company for Distribution PJSC has a high ratio of current liabilities to total assets of 44%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In summary, Abu Dhabi National Oil Company for Distribution PJSC isn't compounding its earnings but is generating decent returns on the same amount of capital employed. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 103% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to continue researching Abu Dhabi National Oil Company for Distribution PJSC, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.