BinDawood Holding's (TADAWUL:4161) Returns On Capital Not Reflecting Well On The Business

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. Although, when we looked at BinDawood Holding (TADAWUL:4161), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for BinDawood Holding, this is the formula:

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

0.10 = ر.س373m ÷ (ر.س5.2b - ر.س1.6b) (Based on the trailing twelve months to June 2024).

So, BinDawood Holding has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Consumer Retailing industry.

Check out our latest analysis for BinDawood Holding

Above you can see how the current ROCE for BinDawood Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for BinDawood Holding .

What The Trend Of ROCE Can Tell Us

In terms of BinDawood Holding's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 19%, but since then they've fallen to 10%. However it looks like BinDawood Holding might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

In Conclusion...

To conclude, we've found that BinDawood Holding is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 28% in the last three years. Therefore based on the analysis done in this article, we don't think BinDawood Holding has the makings of a multi-bagger.

On a separate note, we've found 1 warning sign for BinDawood Holding you'll probably want to know about.

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.