Fujairah Building Industries P.J.S.C (ADX:FBI) Could Be At Risk Of Shrinking As A Company

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Fujairah Building Industries P.J.S.C (ADX:FBI), we weren't too hopeful.

Understanding 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 Fujairah Building Industries P.J.S.C:

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

0.06 = د.إ20m ÷ (د.إ377m - د.إ40m) (Based on the trailing twelve months to June 2024).

Thus, Fujairah Building Industries P.J.S.C has an ROCE of 6.0%. On its own that's a low return, but compared to the average of 3.9% generated by the Basic Materials industry, it's much better.

View our latest analysis for Fujairah Building Industries P.J.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'd like to look at how Fujairah Building Industries P.J.S.C has performed in the past in other metrics, you can view this free graph of Fujairah Building Industries P.J.S.C's past earnings, revenue and cash flow.

What Does the ROCE Trend For Fujairah Building Industries P.J.S.C Tell Us?

In terms of Fujairah Building Industries P.J.S.C's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 12% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 Fujairah Building Industries P.J.S.C to turn into a multi-bagger.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Since the stock has skyrocketed 555% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to know some of the risks facing Fujairah Building Industries P.J.S.C we've found 3 warning signs (2 shouldn't be ignored!) that you should be aware of before investing here.

While Fujairah Building Industries P.J.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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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.