Slowing Rates Of Return At Foods Gate Trading (TADAWUL:9562) Leave Little Room For Excitement

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Foods Gate Trading (TADAWUL:9562) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. To calculate this metric for Foods Gate Trading, this is the formula:

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

0.15 = ر.س7.6m ÷ (ر.س63m - ر.س13m) (Based on the trailing twelve months to June 2023).

Therefore, Foods Gate Trading has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 10% it's much better.

Check out our latest analysis for Foods Gate Trading

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Foods Gate Trading's past further, check out this free graph covering Foods Gate Trading's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Foods Gate Trading, with its capital employed and returns on that capital staying somewhat the same for the last two years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Foods Gate Trading doesn't end up being a multi-bagger in a few years time.

On a side note, Foods Gate Trading has done well to reduce current liabilities to 21% of total assets over the last two years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Foods Gate Trading's ROCE

We can conclude that in regards to Foods Gate Trading's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 24% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know more about Foods Gate Trading, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.

While Foods Gate Trading 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.