Returns On Capital Signal Tricky Times Ahead For BinDawood Holding (TADAWUL:4161)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think BinDawood Holding (TADAWUL:4161) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. 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.س361m ÷ (ر.س5.3b - ر.س1.8b) (Based on the trailing twelve months to March 2024).

Therefore, BinDawood Holding has an ROCE of 10%. In isolation, that's a pretty standard return but against the Consumer Retailing industry average of 13%, it's not as good.

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're interested, you can view the analysts predictions in our free analyst report for BinDawood Holding .

What Can We Tell From BinDawood Holding's ROCE Trend?

On the surface, the trend of ROCE at BinDawood Holding doesn't inspire confidence. Over the last five years, returns on capital have decreased to 10% from 24% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for BinDawood Holding. These growth trends haven't led to growth returns though, since the stock has fallen 27% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you want to continue researching BinDawood Holding, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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