Investors Could Be Concerned With Maharah for Human Resources' (TADAWUL:1831) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Maharah for Human Resources (TADAWUL:1831), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Maharah for Human Resources, this is the formula:

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

0.081 = ر.س104m ÷ (ر.س1.8b - ر.س545m) (Based on the trailing twelve months to June 2024).

Therefore, Maharah for Human Resources has an ROCE of 8.1%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 21%.

View our latest analysis for Maharah for Human Resources

In the above chart we have measured Maharah for Human Resources' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Maharah for Human Resources .

How Are Returns Trending?

In terms of Maharah for Human Resources' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 38% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Maharah for Human Resources has done well to pay down its current liabilities to 30% of total assets. That could partly explain why the ROCE has dropped. 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.

The Bottom Line On Maharah for Human Resources' 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 Maharah for Human Resources. In light of this, the stock has only gained 16% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One more thing: We've identified 2 warning signs with Maharah for Human Resources (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Maharah for Human Resources 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.