Some Investors May Be Worried About National Corporation for Tourism and Hotels' (ADX:NCTH) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at National Corporation for Tourism and Hotels (ADX:NCTH) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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 National Corporation for Tourism and Hotels:

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

0.025 = د.إ64m ÷ (د.إ2.8b - د.إ242m) (Based on the trailing twelve months to December 2022).

Therefore, National Corporation for Tourism and Hotels has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.4%.

Check out our latest analysis for National Corporation for Tourism and Hotels

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 want to delve into the historical earnings, revenue and cash flow of National Corporation for Tourism and Hotels, check out these free graphs here.

So How Is National Corporation for Tourism and Hotels' ROCE Trending?

In terms of National Corporation for Tourism and Hotels' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 5.0%, but since then they've fallen to 2.5%. However it looks like National Corporation for Tourism and Hotels might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On National Corporation for Tourism and Hotels' ROCE

In summary, National Corporation for Tourism and Hotels is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 182% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to know some of the risks facing National Corporation for Tourism and Hotels we've found 3 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.

While National Corporation for Tourism and Hotels 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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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.