There's Been No Shortage Of Growth Recently For Abu Dhabi National Energy Company PJSC's (ADX:TAQA) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at Abu Dhabi National Energy Company PJSC (ADX:TAQA) and its trend of ROCE, we really liked what we saw.

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. 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)

0.057 = د.إ10b ÷ (د.إ213b - د.إ36b) (Based on the trailing twelve months to March 2024).

Therefore, Abu Dhabi National Energy Company PJSC has an ROCE of 5.7%. In absolute terms, that's a low return but it's around the Integrated Utilities industry average of 5.1%.

Check out our latest analysis for Abu Dhabi National Energy Company PJSC

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 analyst report for Abu Dhabi National Energy Company PJSC .

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 5.7%. 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 111%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From 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. Since the stock has returned a staggering 123% to shareholders over the last three years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 2 warning signs facing Abu Dhabi National Energy Company PJSC that you might find interesting.

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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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.