How Well Is Ras Al Khaimah for White Cement & Construction Materials P.S.C (ADX:RAKWCT) Allocating Its Capital?

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, Ras Al Khaimah for White Cement & Construction Materials P.S.C (ADX:RAKWCT) we aren't filled with optimism, but let's investigate further.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Ras Al Khaimah for White Cement & Construction Materials P.S.C:

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

0.01 = د.إ8.4m ÷ (د.إ935m - د.إ130m) (Based on the trailing twelve months to March 2020).

Therefore, Ras Al Khaimah for White Cement & Construction Materials P.S.C has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 9.6%.

View our latest analysis for Ras Al Khaimah for White Cement & Construction Materials P.S.C

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Ras Al Khaimah for White Cement & Construction Materials P.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Ras Al Khaimah for White Cement & Construction Materials P.S.C's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 2.7%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Ras Al Khaimah for White Cement & Construction Materials P.S.C to turn into a multi-bagger.

The Bottom Line On Ras Al Khaimah for White Cement & Construction Materials P.S.C's ROCE

In summary, it's unfortunate that Ras Al Khaimah for White Cement & Construction Materials P.S.C is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 30% from where it was five years ago. Unless these trends revert to a more positive trajectory, we would look elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Ras Al Khaimah for White Cement & Construction Materials P.S.C (of which 1 is potentially serious!) that you should know about.

While Ras Al Khaimah for White Cement & Construction Materials P.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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