Dubai Taxi Company P.J.S.C (DFM:DTC) Knows How To Allocate Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, the ROCE of Dubai Taxi Company P.J.S.C (DFM:DTC) looks great, so lets see what the trend can tell us.

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. To calculate this metric for Dubai Taxi Company P.J.S.C, this is the formula:

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

0.27 = د.إ382m ÷ (د.إ2.1b - د.إ666m) (Based on the trailing twelve months to September 2024).

So, Dubai Taxi Company P.J.S.C has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Transportation industry average of 6.4%.

View our latest analysis for Dubai Taxi Company P.J.S.C

Above you can see how the current ROCE for Dubai Taxi Company P.J.S.C 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 Dubai Taxi Company P.J.S.C .

What Can We Tell From Dubai Taxi Company P.J.S.C's ROCE Trend?

Dubai Taxi Company P.J.S.C has recently broken into profitability so their prior investments seem to be paying off. About four years ago the company was generating losses but things have turned around because it's now earning 27% on its capital. Not only that, but the company is utilizing 284% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Dubai Taxi Company P.J.S.C has decreased current liabilities to 32% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Dubai Taxi Company P.J.S.C's ROCE

Long story short, we're delighted to see that Dubai Taxi Company P.J.S.C's reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 31% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Dubai Taxi Company P.J.S.C does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.