Capital Allocation Trends At Tam Development (TADAWUL:9570) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, while the ROCE is currently high for Tam Development (TADAWUL:9570), we aren't jumping out of our chairs because returns are decreasing.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Tam Development is:

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

0.21 = ر.س33m ÷ (ر.س229m - ر.س70m) (Based on the trailing twelve months to December 2024).

Therefore, Tam Development has an ROCE of 21%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

See our latest analysis for Tam Development

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

What Can We Tell From Tam Development's ROCE Trend?

On the surface, the trend of ROCE at Tam Development doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 32% where it was four years ago. 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.

What We Can Learn From Tam Development's 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 Tam Development. These growth trends haven't led to growth returns though, since the stock has fallen 43% over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know more about Tam Development, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.