Returns On Capital Are A Standout For Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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.

Understanding 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. 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.إ3.2b ÷ (د.إ19b - د.إ8.0b) (Based on the trailing twelve months to June 2024).

So, Abu Dhabi National Oil Company for Distribution PJSC has an ROCE of 29%. 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

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 analyst report for Abu Dhabi National Oil Company for Distribution PJSC .

What Can We Tell From Abu Dhabi National Oil Company for Distribution PJSC's ROCE Trend?

Abu Dhabi National Oil Company for Distribution PJSC's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 24% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Another thing to note, Abu Dhabi National Oil Company for Distribution PJSC has a high ratio of current liabilities to total assets of 42%. 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.

What We Can Learn From 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. Since the stock has returned a solid 83% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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 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.