Returns On Capital At Al Khaleej Training and Education (TADAWUL:4290) Paint An Interesting Picture

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Al Khaleej Training and Education (TADAWUL:4290) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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

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

0.045 = ر.س61m ÷ (ر.س1.7b - ر.س372m) (Based on the trailing twelve months to September 2020).

Therefore, Al Khaleej Training and Education has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 8.3%.

Check out our latest analysis for Al Khaleej Training and Education

In the above chart we have measured Al Khaleej Training and Education'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 Al Khaleej Training and Education.

What Does the ROCE Trend For Al Khaleej Training and Education Tell Us?

In terms of Al Khaleej Training and Education's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 4.5% from 11% five years ago. 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.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Al Khaleej Training and Education's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 15% in the last five years. Therefore based on the analysis done in this article, we don't think Al Khaleej Training and Education has the makings of a multi-bagger.

On a separate note, we've found 2 warning signs for Al Khaleej Training and Education you'll probably want to know about.

While Al Khaleej Training and Education 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. 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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