Emirates Integrated Telecommunications Company PJSC’s (DFM:DU) return on equity does not reflect business well
When we’re researching a business, it’s sometimes hard to find the warning signs, but certain financial metrics can help spot problems early. 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. This tells us that not only is the company reducing the size of its net assets, but its returns are also decreasing. In light of this, at a first glance at Emirates Integrated Telecommunications Company PJSC (DFM:DU), we’ve spotted signs that he might be in trouble, so let’s investigate.
What is return on capital employed (ROCE)?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used 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.å1.0b ÷ (ï.å15b – ï.å4.9b) (Based on the last twelve months to September 2021).
Therefore, Emirates Integrated Telecommunications Company PJSC has a ROCE of 10%. This is a fairly standard return and is in line with the industry average of 10%.
Check out our latest analysis for Emirates Integrated Telecommunications Company PJSC
In the chart above, we measured the past ROCE of Emirates Integrated Telecommunications Company PJSC against its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
What can we say about the ROCE trend of Emirates Integrated Telecommunications Company PJSC?
Regarding the historical movements of the ROCE of Emirates Integrated Telecommunications Company PJSC, the trend does not inspire confidence. About five years ago, capital returns were 35%, but now they are significantly lower than what we saw above. 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.
What we can learn from the ROCE of Emirates Integrated Telecommunications Company PJSC
In summary, it is unfortunate that Emirates Integrated Telecommunications Company PJSC generates lower returns from the same amount of capital. Investors should expect better things on the horizon, however, as the stock is up 39% over the past five years. Either way, we don’t like the trends as they are and if they persist, we think you might find better investments elsewhere.
If you want to know more about Emirates Integrated Telecommunications Company PJSC, we have spotted 2 warning signs, and 1 of them is potentially serious.
If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.
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.
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