Be Wary Of National Company for Learning and Education (TADAWUL:4291) And Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 National Company for Learning and Education (TADAWUL:4291), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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 National Company for Learning and Education:

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

0.057 = ر.س47m ÷ (ر.س944m - ر.س121m) (Based on the trailing twelve months to November 2021).

So, National Company for Learning and Education has an ROCE of 5.7%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 8.2%.

View our latest analysis for National Company for Learning and Education

In the above chart we have measured National Company for Learning and Education's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering National Company for Learning and Education here for free.

How Are Returns Trending?

When we looked at the ROCE trend at National Company for Learning and Education, we didn't gain much confidence. To be more specific, ROCE has fallen from 17% over the last five years. However it looks like National Company for Learning and Education 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 may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On National Company for Learning and Education's ROCE

Bringing it all together, while we're somewhat encouraged by National Company for Learning and Education's reinvestment in its own business, we're aware that returns are shrinking. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 189% gain to shareholders who have held over the last three years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in National Company for Learning and Education it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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.