Stock Analysis

Abu Dhabi National Energy Company PJSC (ADX:TAQA) Is Experiencing Growth In Returns On Capital

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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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Abu Dhabi National Energy Company PJSC (ADX:TAQA) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Abu Dhabi National Energy Company PJSC is:

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

0.067 = د.إ10b ÷ (د.إ179b - د.إ27b) (Based on the trailing twelve months to June 2022).

Thus, Abu Dhabi National Energy Company PJSC has an ROCE of 6.7%. On its own that's a low return, but compared to the average of 4.7% generated by the Integrated Utilities industry, it's much better.

Check out the opportunities and risks within the XX Integrated Utilities industry.

ADX:TAQA Return on Capital Employed October 11th 2022

In the above chart we have measured Abu Dhabi National Energy Company PJSC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Abu Dhabi National Energy Company PJSC.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last two years, returns on capital employed have risen substantially to 6.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 22% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Abu Dhabi National Energy Company PJSC's ROCE

To sum it up, Abu Dhabi National Energy Company PJSC has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 109% total return over the last year tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Abu Dhabi National Energy Company PJSC, we've spotted 3 warning signs, and 2 of them are a bit unpleasant.

While Abu Dhabi National Energy Company PJSC isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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Find out whether Abu Dhabi National Energy Company PJSC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.