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- SASE:9547
Rawasi Albina Investment (TADAWUL:9547) May Have Issues Allocating Its Capital
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Rawasi Albina Investment (TADAWUL:9547) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is 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 Rawasi Albina Investment:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.088 = ر.س13m ÷ (ر.س226m - ر.س81m) (Based on the trailing twelve months to June 2024).
Therefore, Rawasi Albina Investment has an ROCE of 8.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.8%.
Check out our latest analysis for Rawasi Albina Investment
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 , check out these free graphs detailing revenue and cash flow performance of Rawasi Albina Investment.
What Can We Tell From Rawasi Albina Investment's ROCE Trend?
When we looked at the ROCE trend at Rawasi Albina Investment, we didn't gain much confidence. Over the last three years, returns on capital have decreased to 8.8% from 23% three years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
The Bottom Line On Rawasi Albina Investment's ROCE
We're a bit apprehensive about Rawasi Albina Investment because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last year have experienced a 13% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
One more thing: We've identified 4 warning signs with Rawasi Albina Investment (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.
While Rawasi Albina Investment 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.
About SASE:9547
Rawasi Albina Investment
Provides infrastructure works for telecom, electricity, and water projects in Saudi Arabia.
Slight with imperfect balance sheet.