Investors Met With Slowing Returns on Capital At Emirates Central Cooling Systems (DFM:EMPOWER)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 ran our eye over Emirates Central Cooling Systems' (DFM:EMPOWER) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Emirates Central Cooling Systems:

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

0.14 = د.إ1.1b ÷ (د.إ9.6b - د.إ1.7b) (Based on the trailing twelve months to September 2023).

Thus, Emirates Central Cooling Systems has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 7.1% generated by the Water Utilities industry.

View our latest analysis for Emirates Central Cooling Systems

Above you can see how the current ROCE for Emirates Central Cooling Systems 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 Emirates Central Cooling Systems here for free.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 38% more capital in the last three years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Emirates Central Cooling Systems' ROCE

In the end, Emirates Central Cooling Systems has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 30% to shareholders over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Emirates Central Cooling Systems, we've discovered 2 warning signs that you should be aware of.

While Emirates Central Cooling Systems 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.