Academy of Learning (TADAWUL:9541) Could Be Struggling To Allocate Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. In light of that, when we looked at Academy of Learning (TADAWUL:9541) and its ROCE trend, we weren't exactly thrilled.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

What Is 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. Analysts use this formula to calculate it for Academy of Learning:

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

0.094 = ر.س22m ÷ (ر.س265m - ر.س26m) (Based on the trailing twelve months to December 2024).

Thus, Academy of Learning has an ROCE of 9.4%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 17%.

View our latest analysis for Academy of Learning

Historical performance is a great place to start when researching a stock so above you can see the gauge for Academy of Learning's ROCE against it's prior returns. If you're interested in investigating Academy of Learning's past further, check out this free graph covering Academy of Learning's past earnings, revenue and cash flow.

So How Is Academy of Learning's ROCE Trending?

When we looked at the ROCE trend at Academy of Learning, we didn't gain much confidence. Around three years ago the returns on capital were 19%, but since then they've fallen to 9.4%. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Academy of Learning is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 244% to shareholders in the last three years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One final note, you should learn about the 4 warning signs we've spotted with Academy of Learning (including 2 which are concerning) .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.