There Are Reasons To Feel Uneasy About Easy Lease Motor Cycle Rental P.S.C's (ADX:EASYLEASE) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at Easy Lease Motor Cycle Rental P.S.C (ADX:EASYLEASE), it does have a high ROCE right now, but lets see how returns are trending.

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 Easy Lease Motor Cycle Rental P.S.C:

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

0.25 = د.إ30m ÷ (د.إ162m - د.إ39m) (Based on the trailing twelve months to June 2022).

Thus, Easy Lease Motor Cycle Rental P.S.C has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 5.5% earned by companies in a similar industry.

See 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 past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at Easy Lease Motor Cycle Rental P.S.C doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 33% where it was one year 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. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Easy Lease Motor Cycle Rental P.S.C. Furthermore the stock has climbed 27% over the last year, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing to note, we've identified 1 warning sign with Easy Lease Motor Cycle Rental P.S.C and understanding this should be part of your investment process.

Easy Lease Motor Cycle Rental P.S.C is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.