Batic Investments and Logistics (TADAWUL:4110) Could Be Struggling To Allocate Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Batic Investments and Logistics (TADAWUL:4110) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Batic Investments and Logistics is:

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

0.0054 = ر.س7.1m ÷ (ر.س1.5b - ر.س207m) (Based on the trailing twelve months to March 2024).

Therefore, Batic Investments and Logistics has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Industrials industry average of 6.5%.

See our latest analysis for Batic Investments and Logistics

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 Batic Investments and Logistics has performed in the past in other metrics, you can view this free graph of Batic Investments and Logistics' past earnings, revenue and cash flow.

What Can We Tell From Batic Investments and Logistics' ROCE Trend?

On the surface, the trend of ROCE at Batic Investments and Logistics doesn't inspire confidence. Around five years ago the returns on capital were 4.5%, but since then they've fallen to 0.5%. 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. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Batic Investments and Logistics' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Batic Investments and Logistics. And the stock has followed suit returning a meaningful 59% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Batic Investments and Logistics does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

While Batic Investments and Logistics 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com