Al Khaleej Training and Education (TADAWUL:4290) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Al Khaleej Training and Education (TADAWUL:4290) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Al Khaleej Training and Education:

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

0.059 = ر.س75m ÷ (ر.س1.9b - ر.س660m) (Based on the trailing twelve months to June 2023).

So, Al Khaleej Training and Education has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 8.9%.

View our latest analysis for Al Khaleej Training and Education

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

So How Is Al Khaleej Training and Education's ROCE Trending?

When we looked at the ROCE trend at Al Khaleej Training and Education, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.2% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

Our Take On Al Khaleej Training and Education's ROCE

In summary, Al Khaleej Training and Education is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 95% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing to note, we've identified 2 warning signs with Al Khaleej Training and Education and understanding these should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.