Why The 30% Return On Capital At Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) Should Have Your Attention

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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.

Understanding 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. 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)

0.30 = د.إ2.7b ÷ (د.إ14b - د.إ4.9b) (Based on the trailing twelve months to September 2021).

Therefore, Abu Dhabi National Oil Company for Distribution PJSC has an ROCE of 30%. 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

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 report on analyst forecasts for the company.

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. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 83% over the last four years. 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.

In Conclusion...

To sum it up, Abu Dhabi National Oil Company for Distribution PJSC is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 113% to shareholders over the last three years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Abu Dhabi National Oil Company for Distribution PJSC (of which 1 is concerning!) that you should know about.

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.