Slowing Rates Of Return At Dubai Electricity and Water Authority (PJSC) (DFM:DEWA) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Dubai Electricity and Water Authority (PJSC) (DFM:DEWA), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Dubai Electricity and Water Authority (PJSC), this is the formula:

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

0.051 = د.إ8.2b ÷ (د.إ180b - د.إ18b) (Based on the trailing twelve months to March 2023).

Thus, Dubai Electricity and Water Authority (PJSC) has an ROCE of 5.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.1%.

Check out our latest analysis for Dubai Electricity and Water Authority (PJSC)

Above you can see how the current ROCE for Dubai Electricity and Water Authority (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 The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Dubai Electricity and Water Authority (PJSC) in recent years. The company has consistently earned 5.1% for the last five years, and the capital employed within the business has risen 36% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In conclusion, Dubai Electricity and Water Authority (PJSC) has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 5.9% to shareholders over the last year. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching Dubai Electricity and Water Authority (PJSC), you might be interested to know about the 1 warning sign that our analysis has discovered.

While Dubai Electricity and Water Authority (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.