The Returns On Capital At Atlas Elevators General Trading & Contracting (TADAWUL:9578) Don't Inspire Confidence

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Atlas Elevators General Trading & Contracting (TADAWUL:9578) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 Atlas Elevators General Trading & Contracting is:

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

0.014 = ر.س1.4m ÷ (ر.س118m - ر.س15m) (Based on the trailing twelve months to June 2024).

Thus, Atlas Elevators General Trading & Contracting has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 7.7%.

See our latest analysis for Atlas Elevators General Trading & Contracting

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 Atlas Elevators General Trading & Contracting has performed in the past in other metrics, you can view this free graph of Atlas Elevators General Trading & Contracting's past earnings, revenue and cash flow .

How Are Returns Trending?

In terms of Atlas Elevators General Trading & Contracting's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 15% over the last two years. 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.

On a side note, Atlas Elevators General Trading & Contracting has done well to pay down its current liabilities to 13% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

In Conclusion...

While returns have fallen for Atlas Elevators General Trading & Contracting in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, total returns to shareholders over the last year have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we've found 5 warning signs for Atlas Elevators General Trading & Contracting that we think you should be aware of.

While Atlas Elevators General Trading & Contracting 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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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.