Are Investors Concerned With What's Going On At Saudi Printing and Packaging (TADAWUL:4270)?

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at Saudi Printing and Packaging (TADAWUL:4270), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Saudi Printing and Packaging, this is the formula:

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

0.012 = ر.س14m ÷ (ر.س1.8b - ر.س576m) (Based on the trailing twelve months to September 2020).

Therefore, Saudi Printing and Packaging has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 8.4%.

View our latest analysis for Saudi Printing and Packaging

Historical performance is a great place to start when researching a stock so above you can see the gauge for Saudi Printing and Packaging's ROCE against it's prior returns. If you'd like to look at how Saudi Printing and Packaging has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Saudi Printing and Packaging's ROCE Trending?

In terms of Saudi Printing and Packaging's historical ROCE trend, it isn't fantastic. The company used to generate 3.3% on its capital five years ago but it has since fallen noticeably. On top of that, the business is utilizing 28% less capital within its operations. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Bottom Line On Saudi Printing and Packaging's ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. In spite of that, the stock has delivered a 12% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 1 warning sign facing Saudi Printing and Packaging that you might find interesting.

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This article by Simply Wall St is general in nature. 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.
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