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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Easy Lease Motor Cycle Rental P.S.C (ADX:EASYLEASE), it didn't seem to tick all of these boxes.

Understanding 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 Easy Lease Motor Cycle Rental P.S.C, this is the formula:

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

0.12 = د.إ41m ÷ (د.إ479m - د.إ129m) (Based on the trailing twelve months to June 2024).

Thus, Easy Lease Motor Cycle Rental P.S.C has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Transportation industry.

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

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Easy Lease Motor Cycle Rental P.S.C has performed in the past in other metrics, you can view this free graph of Easy Lease Motor Cycle Rental P.S.C's past earnings, revenue and cash flow.

So How Is Easy Lease Motor Cycle Rental P.S.C's ROCE Trending?

In terms of Easy Lease Motor Cycle Rental P.S.C's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 35% 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. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Easy Lease Motor Cycle Rental P.S.C is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 36% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Easy Lease Motor Cycle Rental P.S.C does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.