Returns On Capital At Emirates Integrated Telecommunications Company PJSC (DFM:DU) Paint A Concerning Picture

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Emirates Integrated Telecommunications Company PJSC (DFM:DU), the trends above didn't look too great.

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. Analysts use this formula to calculate it for Emirates Integrated Telecommunications Company PJSC:

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

0.11 = د.إ1.2b ÷ (د.إ16b - د.إ4.9b) (Based on the trailing twelve months to June 2022).

So, Emirates Integrated Telecommunications Company PJSC has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

Check out our latest analysis for Emirates Integrated Telecommunications Company PJSC

In the above chart we have measured Emirates Integrated Telecommunications Company PJSC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Emirates Integrated Telecommunications Company PJSC here for free.

How Are Returns Trending?

There is reason to be cautious about Emirates Integrated Telecommunications Company PJSC, given the returns are trending downwards. About five years ago, returns on capital were 34%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Emirates Integrated Telecommunications Company PJSC to turn into a multi-bagger.

Our Take On Emirates Integrated Telecommunications Company PJSC's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 39% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to continue researching Emirates Integrated Telecommunications Company PJSC, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Emirates Integrated Telecommunications 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.