Returns On Capital At Emirates Telecommunications Group Company PJSC (ADX:ETISALAT) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Emirates Telecommunications Group Company PJSC (ADX:ETISALAT) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. 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)

0.15 = د.إ13b ÷ (د.إ130b - د.إ45b) (Based on the trailing twelve months to March 2022).

Therefore, Emirates Telecommunications Group Company PJSC has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Telecom industry.

Check out 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 report for Emirates Telecommunications Group Company PJSC.

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

Things have been pretty stable at Emirates Telecommunications Group Company PJSC, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Emirates Telecommunications Group Company PJSC doesn't end up being a multi-bagger in a few years time. On top of that you'll notice that Emirates Telecommunications Group Company PJSC has been paying out a large portion (83%) of earnings in the form of dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

The Key Takeaway

In a nutshell, Emirates Telecommunications Group Company PJSC has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 100% 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 Emirates Telecommunications Group Company PJSC, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.