What Do The Returns At Emirates Telecommunications Group Company PJSC (ADX:ETISALAT) Mean Going Forward?

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, Emirates Telecommunications Group Company PJSC (ADX:ETISALAT) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. 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)

0.19 = د.إ15b ÷ (د.إ126b - د.إ48b) (Based on the trailing twelve months to September 2020).

Thus, Emirates Telecommunications Group Company PJSC has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 9.8% it's much better.

Check out our latest analysis for Emirates Telecommunications Group Company PJSC

Above you can see how the current ROCE for Emirates Telecommunications Group Company PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Emirates Telecommunications Group Company PJSC here for free.

What The Trend Of ROCE Can Tell Us

Emirates Telecommunications Group Company PJSC has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 25% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

As discussed above, Emirates Telecommunications Group Company PJSC appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 56% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Emirates Telecommunications Group Company PJSC can keep these trends up, it could have a bright future ahead.

Emirates Telecommunications Group Company PJSC does have some risks though, and we've spotted 1 warning sign for Emirates Telecommunications Group Company PJSC that you might be interested in.

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