Returns At Abdullah Al-Othaim Markets (TADAWUL:4001) Appear To Be Weighed Down

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Abdullah Al-Othaim Markets (TADAWUL:4001) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Abdullah Al-Othaim Markets is:

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

0.13 = ر.س361m ÷ (ر.س5.1b - ر.س2.2b) (Based on the trailing twelve months to September 2021).

Thus, Abdullah Al-Othaim Markets has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Consumer Retailing industry.

Check out our latest analysis for Abdullah Al-Othaim Markets

Historical performance is a great place to start when researching a stock so above you can see the gauge for Abdullah Al-Othaim Markets' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Abdullah Al-Othaim Markets, check out these free graphs here.

So How Is Abdullah Al-Othaim Markets' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 82% more capital into its operations. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Abdullah Al-Othaim Markets' current liabilities are still rather high at 43% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

The main thing to remember is that Abdullah Al-Othaim Markets has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 153% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for Abdullah Al-Othaim Markets you'll probably want to know about.

While Abdullah Al-Othaim Markets may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.