Dubai Taxi Company P.J.S.C (DFM:DTC) Is Reinvesting At Lower Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at Dubai Taxi Company P.J.S.C (DFM:DTC), it does have a high ROCE right now, but lets see how returns are trending.

We've discovered 2 warning signs about Dubai Taxi Company P.J.S.C. View them for free.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Dubai Taxi Company P.J.S.C:

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

0.25 = د.إ406m ÷ (د.إ2.3b - د.إ710m) (Based on the trailing twelve months to December 2024).

Thus, Dubai Taxi Company P.J.S.C has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Transportation industry average of 7.2%.

See our latest analysis for Dubai Taxi Company P.J.S.C

In the above chart we have measured Dubai Taxi Company P.J.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Dubai Taxi Company P.J.S.C for free.

What Does the ROCE Trend For Dubai Taxi Company P.J.S.C Tell Us?

In terms of Dubai Taxi Company P.J.S.C's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 51% where it was five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Dubai Taxi Company P.J.S.C has done well to pay down its current liabilities to 31% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Dubai Taxi Company P.J.S.C's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Dubai Taxi Company P.J.S.C. And the stock has followed suit returning a meaningful 22% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Dubai Taxi Company P.J.S.C does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.