Stock Analysis

Returns On Capital Are Showing Encouraging Signs At Abu Dhabi National Energy Company PJSC (ADX:TAQA)

ADX:TAQA
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher 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.

Understanding Return On Capital Employed (ROCE)

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. 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.إ11b ÷ (د.إ191b - د.إ32b) (Based on the trailing twelve months to March 2023).

Therefore, 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 5.1% 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 June 8th 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Abu Dhabi National Energy Company PJSC's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last three years to 6.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 89% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

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

All in all, it's terrific to see that Abu Dhabi National Energy Company PJSC is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last year, 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'd like to know more about Abu Dhabi National Energy Company PJSC, we've spotted 3 warning signs, and 1 of them is potentially serious.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.