Emirates Telecommunications Group Company PJSC (ADX:EAND) May Have Issues Allocating Its Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. In light of that, when we looked at Emirates Telecommunications Group Company PJSC (ADX:EAND) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Emirates Telecommunications Group Company PJSC, this is the formula:

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

0.13 = د.إ13b ÷ (د.إ148b - د.إ48b) (Based on the trailing twelve months to March 2024).

Thus, Emirates Telecommunications Group Company PJSC has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Telecom industry.

View our latest analysis for Emirates Telecommunications Group Company PJSC

In the above chart we have measured Emirates Telecommunications Group Company 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 analyst report for Emirates Telecommunications Group Company PJSC .

What Does the ROCE Trend For Emirates Telecommunications Group Company PJSC Tell Us?

When we looked at the ROCE trend at Emirates Telecommunications Group Company PJSC, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 13% from 18% five years ago. However it looks like Emirates Telecommunications Group Company PJSC might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Emirates Telecommunications Group Company PJSC's ROCE

Bringing it all together, while we're somewhat encouraged by Emirates Telecommunications Group Company PJSC's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 14% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 1 warning sign for Emirates Telecommunications Group Company PJSC you'll probably want to know about.

While Emirates Telecommunications Group Company PJSC may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.

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