Stock Analysis

The Return Trends At Abu Dhabi National Energy Company PJSC (ADX:TAQA) Look Promising

ADX:TAQA
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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)

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

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

0.047 = د.إ7.3b ÷ (د.إ183b - د.إ27b) (Based on the trailing twelve months to September 2021).

So, Abu Dhabi National Energy Company PJSC has an ROCE of 4.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.7%.

View our latest analysis for Abu Dhabi National Energy Company PJSC

roce
ADX:TAQA Return on Capital Employed February 8th 2022

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 to see what analysts are forecasting going forward, you should check out our free report for Abu Dhabi National Energy Company PJSC.

How Are Returns Trending?

While there are companies with higher returns on capital out there, we still find the trend at Abu Dhabi National Energy Company PJSC promising. More specifically, while the company has kept capital employed relatively flat over the last one year, the ROCE has climbed 134% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To sum it up, Abu Dhabi National Energy Company PJSC is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 10% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 1 warning sign for Abu Dhabi National Energy Company PJSC you'll probably want to know about.

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.