Easy Lease Motor Cycle Rental P.S.C (ADX:EASYLEASE) May Have Issues Allocating Its Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Easy Lease Motor Cycle Rental P.S.C:

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

0.16 = د.إ33m ÷ (د.إ287m - د.إ76m) (Based on the trailing twelve months to September 2023).

Therefore, Easy Lease Motor Cycle Rental P.S.C has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 5.7% it's much better.

Check out 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're interested in investigating Easy Lease Motor Cycle Rental P.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Easy Lease Motor Cycle Rental P.S.C Tell Us?

When we looked at the ROCE trend at Easy Lease Motor Cycle Rental P.S.C, we didn't gain much confidence. Over the last three years, returns on capital have decreased to 16% from 34% three years ago. 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.

The Bottom Line On 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. However, despite the promising trends, the stock has fallen 13% over the last year, so there might be an opportunity here for astute investors. 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 though, and we've spotted 3 warning signs for Easy Lease Motor Cycle Rental P.S.C that you might be interested in.

While Easy Lease Motor Cycle Rental P.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.