Be Wary Of Abdulaziz and Mansour Ibrahim Albabtin (TADAWUL:9549) And Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Abdulaziz and Mansour Ibrahim Albabtin (TADAWUL:9549), 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. Analysts use this formula to calculate it for Abdulaziz and Mansour Ibrahim Albabtin:

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

0.082 = ر.س6.0m ÷ (ر.س131m - ر.س58m) (Based on the trailing twelve months to June 2024).

Thus, Abdulaziz and Mansour Ibrahim Albabtin has an ROCE of 8.2%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 12%.

View our latest analysis for Abdulaziz and Mansour Ibrahim Albabtin

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Abdulaziz and Mansour Ibrahim Albabtin has performed in the past in other metrics, you can view this free graph of Abdulaziz and Mansour Ibrahim Albabtin's past earnings, revenue and cash flow.

What Can We Tell From Abdulaziz and Mansour Ibrahim Albabtin's ROCE Trend?

On the surface, the trend of ROCE at Abdulaziz and Mansour Ibrahim Albabtin doesn't inspire confidence. To be more specific, ROCE has fallen from 23% over the last five years. 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.

Another thing to note, Abdulaziz and Mansour Ibrahim Albabtin has a high ratio of current liabilities to total assets of 44%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Abdulaziz and Mansour Ibrahim Albabtin is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 22% over the last year, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

One more thing: We've identified 3 warning signs with Abdulaziz and Mansour Ibrahim Albabtin (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Abdulaziz and Mansour Ibrahim Albabtin 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.