Returns On Capital At Ataa Educational (TADAWUL:4292) Paint A Concerning Picture

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Although, when we looked at Ataa Educational (TADAWUL:4292), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Ataa Educational is:

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

0.067 = ر.س118m ÷ (ر.س2.1b - ر.س364m) (Based on the trailing twelve months to April 2024).

Therefore, Ataa Educational has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 13%.

Check out our latest analysis for Ataa Educational

Above you can see how the current ROCE for Ataa Educational compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ataa Educational .

How Are Returns Trending?

On the surface, the trend of ROCE at Ataa Educational doesn't inspire confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 6.7%. However it looks like Ataa Educational 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'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 Ataa Educational's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 30% over the last three 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.

On a separate note, we've found 1 warning sign for Ataa Educational you'll probably want to know about.

While Ataa Educational 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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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.

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