Emirates Telecommunications Group Company PJSC (ADX: ETISALAT) hopes to transform its capital returns

When we’re researching a business, it’s sometimes hard to find the warning signs, but certain financial metrics can help spot problems early. More often than not we will see a decline come back on capital employed (ROCE) and a decrease amount capital employed. This indicates that the company is getting less profit from its investments and its total assets are decreasing. That said, after a quick look, Emirates Telecommunications Group Company PJSC (ADX:ETISALAT) we are not filled with optimism, but deepen our research.

Return on capital employed (ROCE): what is it?

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. The formula for this calculation on Emirates Telecommunications Group Company PJSC is:

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

0.13 = Ï.å13b ÷ (Ï.å138b – ï.å41b) (Based on the last twelve months to June 2022).

Thereby, Emirates Telecommunications Group Company PJSC has a ROCE of 13%. In absolute terms, that’s a decent return, but compared to the telecom industry average of 11%, it’s much better.

Check out our latest analysis for Emirates Telecommunications Group Company PJSC

Above, you can see how Emirates Telecommunications Group Company PJSC’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

What does the ROCE trend tell us for Emirates Telecommunications Group Company PJSC?

There is reason to be cautious about Emirates Telecommunications Group Company PJSC as yields tend to fall. To be more precise, the ROCE was 18% five years ago, but since then it has fallen significantly. In addition to this, it should be noted that the amount of capital used within the company remained relatively stable. This combination may be a sign of a mature business that still has areas to deploy capital, but the returns received are not as high due potentially to new competition or lower margins. If these trends continue, we would not expect Emirates Telecommunications Group Company PJSC to turn into a multi-bagger.

In conclusion…

In summary, it is unfortunate that Emirates Telecommunications Group Company PJSC generates lower returns from the same amount of capital. However, the stock has generated a 79% return for shareholders over the past five years, so investors might expect the tide to turn. Either way, we don’t feel too comfortable with the fundamentals, so we’d avoid this stock for now.

Although Emirates Telecommunications Group Company PJSC does not shine too brightly in this regard, it is still worth seeing if the company is trading at attractive prices. You can find out with our FREE Intrinsic Value Estimate on our platform.

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.

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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.