There Are Reasons To Feel Uneasy About National Company for Learning and Education's (TADAWUL:4291) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its 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)

0.11 = ر.س107m ÷ (ر.س1.1b - ر.س151m) (Based on the trailing twelve months to May 2023).

Therefore, National Company for Learning and Education has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 8.8% it's much better.

Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

In terms of National Company for Learning and Education's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 15%, but since then they've fallen to 11%. 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. If these investments prove successful, this can bode very well for long term stock performance.

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

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for National Company for Learning and Education. And long term investors must be optimistic going forward because the stock has returned a huge 125% to shareholders in the last three years. So should these growth trends continue, we'd be optimistic on the stock going forward.

National Company for Learning and Education could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.