Emirates Integrated Telecommunications Company PJSC (DFM:DU) could risk shrinking as a business

When researching a stock for investment purposes, what can tell us that the company is in decline? A potentially declining business often exhibits two trends, one to return to on capital employed (ROCE) which is down, and a based capital employed, which is also down. Ultimately, this means that the company earns less per dollar invested and, in addition, it reduces its employed capital base. So after taking a look at the trends inside Emirates Integrated Telecommunications Company PJSC (DFM:DU), we weren’t too optimistic.

Understanding return on capital employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for Emirates Integrated Telecommunications Company PJSC, here is the formula:

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

0.10 = Ï.å1.1b ÷ (ï.å17b – ï.å5.9b) (Based on the last twelve months to December 2021).

So, Emirates Integrated Telecommunications Company PJSC has a ROCE of 10%. In itself, this is a normal return on capital and is in line with industry average returns of 10%.

Check out our latest analysis for Emirates Integrated Telecommunications Company PJSC

DFM: DU Return on Capital Employed March 29, 2022

Above, you can see how Emirates Integrated Telecommunications Company PJSC’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you wish, you can view analyst forecasts covering Emirates Integrated Telecommunications Company PJSC here for free.

The ROCE trend

We are a bit worried about the trend of capital returns at Emirates Integrated Telecommunications Company PJSC. Unfortunately, capital returns have declined from the 33% they earned five years ago. In addition to this, it should be noted that the amount of capital used within the company remained relatively stable. Given that yields are down and the business is using the same amount of assets, this may suggest that it is a mature business that hasn’t seen much growth over the past five years. . If these trends continue, we do not expect Emirates Integrated Telecommunications Company PJSC to turn into a multi-bagger.

The Key Takeaway

Ultimately, the tendency for lower returns on the same amount of capital is generally not an indication that we are considering a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 41% return over the past five years, so investors seem very optimistic. Either way, we don’t feel too comfortable with the fundamentals, so we’d avoid this stock for now.

Like most businesses, Emirates Integrated Telecommunications Company PJSC carries certain risks, and we have found 1 warning sign of which you should be aware.

Although Emirates Integrated Telecommunications Company PJSC does not get the highest return, check this free list of companies that achieve high returns on equity with strong balance sheets.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Sean B. Jackson