Should You Be Impressed By National Company for Learning and Education's (TADAWUL:4291) Returns on Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating National Company for Learning and Education (TADAWUL:4291), we don't think it's current trends fit the mold of a multi-bagger.

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

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 National Company for Learning and Education, this is the formula:

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

0.085 = ر.س66m ÷ (ر.س837m - ر.س66m) (Based on the trailing twelve months to August 2020).

So, National Company for Learning and Education has an ROCE of 8.5%. In absolute terms, that's a low return but it's around the Consumer Services industry average of 8.4%.

Check out our latest analysis for National Company for Learning and Education

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

So How Is National Company for Learning and Education's ROCE Trending?

In terms of National Company for Learning and Education's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 8.5% from 18% five years ago. 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 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. Since the stock has gained an impressive 71% over the last year, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching National Company for Learning and Education, you might be interested to know about the 2 warning signs that our analysis has discovered.

While National Company for Learning and Education isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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