Stock Analysis

Etihad Etisalat (TADAWUL:7020) Is Looking To Continue Growing Its Returns On Capital

SASE:7020
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Etihad Etisalat (TADAWUL:7020) so let's look a bit deeper.

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. To calculate this metric for Etihad Etisalat, this is the formula:

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

0.063 = ر.س1.8b ÷ (ر.س39b - ر.س11b) (Based on the trailing twelve months to March 2022).

Thus, Etihad Etisalat has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 8.2%.

View our latest analysis for Etihad Etisalat

roce
SASE:7020 Return on Capital Employed April 30th 2022

Above you can see how the current ROCE for Etihad Etisalat 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 Etihad Etisalat.

What Can We Tell From Etihad Etisalat's ROCE Trend?

Etihad Etisalat is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 988% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Etihad Etisalat's ROCE

In summary, we're delighted to see that Etihad Etisalat has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 111% to shareholders over the last five 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.

On a separate note, we've found 3 warning signs for Etihad Etisalat you'll probably want to know about.

While Etihad Etisalat may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Valuation is complex, but we're here to simplify it.

Discover if Etihad Etisalat might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.