Multiply Group PJSC (ADX:MULTIPLY) Will Be Hoping To Turn Its Returns On Capital Around

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Multiply Group PJSC (ADX:MULTIPLY) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Multiply Group PJSC:

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

0.013 = د.إ435m ÷ (د.إ40b - د.إ5.9b) (Based on the trailing twelve months to September 2024).

Therefore, Multiply Group PJSC has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Industrials industry average of 4.3%.

View our latest analysis for Multiply Group PJSC

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 Multiply Group PJSC's past further, check out this free graph covering Multiply Group PJSC's past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Multiply Group PJSC, we didn't gain much confidence. To be more specific, ROCE has fallen from 3.5% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, Multiply Group PJSC has decreased its current liabilities to 15% 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. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Multiply Group PJSC is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 39% over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you're still interested in Multiply Group PJSC it's worth checking out our FREE intrinsic value approximation for MULTIPLY to see if it's trading at an attractive price in other respects.

While Multiply Group PJSC may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.