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Thursday, April 18, 2024

Abu Dhabi National Hotels Company PJSC (ADX:ADNH) Return Trend Looks Promising


Did you know that there are some financial indicators that can provide clues to a potential polybag? In a perfect world, we’d like to see a company invest more capital in its business, and ideally the return on that capital increase as well. Simply put, these types of businesses are compound interest machines, meaning they continually reinvest earnings at higher rates of return.With this in mind, we note some promising trends Abu Dhabi National Hotels Company PJSC (ADX:ADNH) so let’s dig a little deeper.

Return on Capital Employed (ROCE): What is it?

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (return) relative to the capital employed in the business. To calculate this metric for Abu Dhabi National Hotels Company PJSC, the formula is as follows:

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

0.037 = $320 million ÷ ($9.7b – $1.0b) (Based on last 12 months to March 2023).

so, Abu Dhabi National Hotels Company PJSC has a ROCE of 3.7%. Returns are low in absolute terms and below the hotel industry average of 5.9%.

Check out our latest analysis for Abu Dhabi National Hotels Company PJSC

ADX: ADNH Return on Capital Employed July 7, 2023

While the past is no indication of the future, it can be helpful to understand a company’s historical performance, which is why we created the chart above.If you want to know how Abu Dhabi National Hotels Company PJSC has performed in other metrics in the past, you can check this free Past Earnings, Income and Cash Flow Graph.

What trends in ROCE can tell us

Although ROCE is still low in absolute terms, it is good to see that it is moving in the right direction. We can see from the data that while the capital employed in the business has remained relatively flat, the ROCE generated has increased by 105% over the past five years. Therefore, since the capital employed has not changed much, the business is now likely to be reaping the full benefits of past investments. Still, it’s worth digging deeper into this, because while increased business efficiency is great, it can also mean a lack of areas for internal investment to grow organically in the future.

the bottom line

All in all, we are pleased to see that Abu Dhabi National Hotels Company PJSC is able to increase efficiency and achieve a higher rate of return on the same capital. With the stock returning a staggering 193% to shareholders over the past five years, it appears investors are waking up to these changes. So we think it’s worth your while to check whether these trends are here to stay.

We note that Abu Dhabi National Hotel Company PJSC does have some risks 2 warning signs (and 1 is somewhat unpleasant) We think you should know.

While Abu Dhabi National Hotels Company PJSC may not be earning the highest returns right now, we’ve compiled a list of companies that currently have a return on equity of over 25%.check it out free List here.

Valuation is complicated, but we’re helping make it simple.

Find out if Abu Dhabi National Hotels Company PJSC is potentially overvalued or undervalued by viewing our comprehensive analysis, which includes Fair value estimates, risks and caveats, dividends, insider trading and financial health.

View free analysis

This Simply Wall St article is general in nature. We use an unbiased approach only to provide reviews based on historical data and analyst forecasts, and our articles are not intended to provide financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St does not hold a position in any of the stocks mentioned above.


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