Some Investors May Be Worried About Emirates Telecommunications Group Company PJSC's (ADX:EAND) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Emirates Telecommunications Group Company PJSC (ADX:EAND) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Emirates Telecommunications Group Company PJSC:

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

0.14 = د.إ14b ÷ (د.إ143b - د.إ43b) (Based on the trailing twelve months to June 2024).

Thus, Emirates Telecommunications Group Company PJSC has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Telecom industry average of 12%.

See 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're interested, you can view the analysts predictions in our free analyst report for Emirates Telecommunications Group Company PJSC .

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

On the surface, the trend of ROCE at Emirates Telecommunications Group Company PJSC doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 14%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Emirates Telecommunications Group Company PJSC's ROCE

In summary, Emirates Telecommunications Group Company PJSC is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 33% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 2 warning signs for Emirates Telecommunications Group Company PJSC that we think you should be aware of.

While Emirates Telecommunications Group Company PJSC isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.