BinDawood Holding (TADAWUL:4161) Will Want To Turn Around Its Return Trends

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating BinDawood Holding (TADAWUL:4161), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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 BinDawood Holding:

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

0.025 = ر.س86m ÷ (ر.س4.7b - ر.س1.3b) (Based on the trailing twelve months to September 2022).

So, BinDawood Holding has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 10%.

See our latest analysis for BinDawood Holding

In the above chart we have measured BinDawood Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for BinDawood Holding.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at BinDawood Holding, we didn't gain much confidence. Around five years ago the returns on capital were 44%, but since then they've fallen to 2.5%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, BinDawood Holding has decreased its current liabilities to 27% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On BinDawood Holding's ROCE

Bringing it all together, while we're somewhat encouraged by BinDawood Holding's reinvestment in its own business, we're aware that returns are shrinking. And in the last year, the stock has given away 40% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think BinDawood Holding has the makings of a multi-bagger.

On a final note, we've found 4 warning signs for BinDawood Holding that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.