Stock Analysis

Naseej International Trading (TADAWUL:1213) Is Experiencing Growth In Returns On Capital

SASE:1213
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Naseej International Trading's (TADAWUL:1213) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Naseej International Trading:

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

0.012 = ر.س3.4m ÷ (ر.س403m - ر.س126m) (Based on the trailing twelve months to June 2023).

Therefore, Naseej International Trading has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.2%.

See our latest analysis for Naseej International Trading

roce
SASE:1213 Return on Capital Employed September 12th 2023

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

So How Is Naseej International Trading's ROCE Trending?

We're delighted to see that Naseej International Trading is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 1.2% on their capital employed. In regards to capital employed, Naseej International Trading is using 30% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Naseej International Trading could be selling under-performing assets since the ROCE is improving.

On a related note, the company's ratio of current liabilities to total assets has decreased to 31%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Naseej International Trading has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

In the end, Naseej International Trading has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a staggering 180% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we're here to simplify it.

Discover if Naseej International Trading might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.