The Returns On Capital At CATRION Catering Holding (TADAWUL:6004) Don't Inspire Confidence

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. So after we looked into CATRION Catering Holding (TADAWUL:6004), the trends above didn't look too great.

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 CATRION Catering Holding:

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

0.18 = ر.س291m ÷ (ر.س2.3b - ر.س685m) (Based on the trailing twelve months to June 2024).

Therefore, CATRION Catering Holding has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Commercial Services industry.

Check out our latest analysis for CATRION Catering Holding

In the above chart we have measured CATRION Catering Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CATRION Catering Holding for free.

The Trend Of ROCE

In terms of CATRION Catering Holding's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 26%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on CATRION Catering Holding becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that CATRION Catering Holding is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 40% in 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.

CATRION Catering Holding does have some risks though, and we've spotted 1 warning sign for CATRION Catering Holding that you might be interested in.

While CATRION Catering Holding 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.