Easy Lease Motor Cycle Rental P.S.C (ADX:EASYLEASE) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Easy Lease Motor Cycle Rental P.S.C (ADX:EASYLEASE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Easy Lease Motor Cycle Rental P.S.C is:

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

0.13 = د.إ31m ÷ (د.إ376m - د.إ131m) (Based on the trailing twelve months to December 2023).

Thus, Easy Lease Motor Cycle Rental P.S.C has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 6.4% it's much better.

Check out our latest analysis for Easy Lease Motor Cycle Rental P.S.C

Historical performance is a great place to start when researching a stock so above you can see the gauge for Easy Lease Motor Cycle Rental P.S.C's ROCE against it's prior returns. If you're interested in investigating Easy Lease Motor Cycle Rental P.S.C's past further, check out this free graph covering Easy Lease Motor Cycle Rental P.S.C's past earnings, revenue and cash flow.

What Can We Tell From Easy Lease Motor Cycle Rental P.S.C's ROCE Trend?

On the surface, the trend of ROCE at Easy Lease Motor Cycle Rental P.S.C doesn't inspire confidence. To be more specific, ROCE has fallen from 41% over the last four years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Easy Lease Motor Cycle Rental P.S.C's ROCE

While returns have fallen for Easy Lease Motor Cycle Rental P.S.C in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Furthermore the stock has climbed 35% over the last three years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a final note, we've found 1 warning sign for Easy Lease Motor Cycle Rental P.S.C that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.