Stock Analysis

Returns Are Gaining Momentum At Abu Dhabi National Energy Company PJSC (ADX:TAQA)

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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Abu Dhabi National Energy Company PJSC (ADX:TAQA) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)

0.058 = د.إ9.5b ÷ (د.إ195b - د.إ30b) (Based on the trailing twelve months to September 2023).

Thus, Abu Dhabi National Energy Company PJSC has an ROCE of 5.8%. On its own, that's a low figure but it's around the 5.0% average generated by the Integrated Utilities industry.

See our latest analysis for Abu Dhabi National Energy Company PJSC

ADX:TAQA Return on Capital Employed January 25th 2024

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, you can check out the forecasts from the analysts covering Abu Dhabi National Energy Company PJSC here for free.

What Does the ROCE Trend For Abu Dhabi National Energy Company PJSC Tell Us?

Abu Dhabi National Energy Company PJSC has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last three years, the ROCE has climbed 188% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Abu Dhabi National Energy Company PJSC's ROCE

As discussed above, Abu Dhabi National Energy Company PJSC appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Abu Dhabi National Energy Company PJSC we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we're helping make it simple.

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.