The Returns On Capital At Abu Dhabi Ports Company PJSC (ADX:ADPORTS) Don't Inspire Confidence

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Abu Dhabi Ports Company PJSC (ADX:ADPORTS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Abu Dhabi Ports Company PJSC, this is the formula:

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

0.033 = د.إ1.7b ÷ (د.إ58b - د.إ6.9b) (Based on the trailing twelve months to March 2024).

Therefore, Abu Dhabi Ports Company PJSC has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 6.6%.

See our latest analysis for Abu Dhabi Ports Company PJSC

Above you can see how the current ROCE for Abu Dhabi Ports Company PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Abu Dhabi Ports Company PJSC .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Abu Dhabi Ports Company PJSC, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.3% from 4.5% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Abu Dhabi Ports Company PJSC's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Abu Dhabi Ports Company PJSC. And there could be an opportunity here if other metrics look good too, because the stock has declined 18% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One final note, you should learn about the 2 warning signs we've spotted with Abu Dhabi Ports Company PJSC (including 1 which is potentially serious) .

While Abu Dhabi Ports 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.

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