Returns On Capital At R.A.K. Ceramics P.J.S.C (ADX:RAKCEC) Paint A Concerning Picture

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into R.A.K. Ceramics P.J.S.C (ADX:RAKCEC), the trends above didn't look too great.

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 R.A.K. Ceramics P.J.S.C:

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

0.059 = د.إ189m ÷ (د.إ5.2b - د.إ2.0b) (Based on the trailing twelve months to March 2021).

Therefore, R.A.K. Ceramics P.J.S.C has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Building industry average of 8.2%.

See our latest analysis for R.A.K. Ceramics P.J.S.C

Above you can see how the current ROCE for R.A.K. Ceramics 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'd like, you can check out the forecasts from the analysts covering R.A.K. Ceramics P.J.S.C here for free.

What Does the ROCE Trend For R.A.K. Ceramics P.J.S.C Tell Us?

The trend of ROCE at R.A.K. Ceramics P.J.S.C is showing some signs of weakness. To be more specific, today's ROCE was 9.6% five years ago but has since fallen to 5.9%. On top of that, the business is utilizing 22% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.

Our Take On R.A.K. Ceramics P.J.S.C's ROCE

To see R.A.K. Ceramics P.J.S.C reducing the capital employed in the business in tandem with diminishing returns, is concerning. Investors must expect better things on the horizon though because the stock has risen 21% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a final note, we found 3 warning signs for R.A.K. Ceramics P.J.S.C (1 is concerning) you should be aware of.

While R.A.K. Ceramics P.J.S.C 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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