NMDC Energy - P.J.S.C (ADX:NMDCENR) Is Very Good At Capital Allocation

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of NMDC Energy - P.J.S.C (ADX:NMDCENR) we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

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 NMDC Energy - P.J.S.C:

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

0.24 = د.إ1.5b ÷ (د.إ19b - د.إ13b) (Based on the trailing twelve months to September 2025).

Therefore, NMDC Energy - P.J.S.C has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Energy Services industry average of 8.5%.

View our latest analysis for NMDC Energy - P.J.S.C

Above you can see how the current ROCE for NMDC Energy - P.J.S.C compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for NMDC Energy - P.J.S.C .

How Are Returns Trending?

Investors would be pleased with what's happening at NMDC Energy - P.J.S.C. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 24%. The amount of capital employed has increased too, by 24%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 67% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line

To sum it up, NMDC Energy - P.J.S.C has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 13% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

While NMDC Energy - P.J.S.C looks impressive, no company is worth an infinite price. The intrinsic value infographic for NMDCENR helps visualize whether it is currently trading for a fair price.

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.