Stock Analysis

Returns At Abu Dhabi National Energy Company PJSC (ADX:TAQA) Are On The Way Up

ADX:TAQA
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Abu Dhabi National Energy Company PJSC's (ADX:TAQA) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for Abu Dhabi National Energy Company PJSC:

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

0.064 = د.إ10b ÷ (د.إ193b - د.إ31b) (Based on the trailing twelve months to June 2023).

Thus, Abu Dhabi National Energy Company PJSC has an ROCE of 6.4%. On its own that's a low return, but compared to the average of 5.2% generated by the Integrated Utilities industry, it's much better.

View our latest analysis for Abu Dhabi National Energy Company PJSC

roce
ADX:TAQA Return on Capital Employed September 27th 2023

Above you can see how the current ROCE for Abu Dhabi National Energy Company PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Abu Dhabi National Energy Company PJSC here for free.

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last three years to 6.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 31%. 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.

What We Can Learn From 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 with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Abu Dhabi National Energy Company PJSC can keep these trends up, it could have a bright future ahead.

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.

While Abu Dhabi National Energy Company PJSC may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

View the Free Analysis

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.