Here's What To Make Of ADES Holding's (TADAWUL:2382) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 ADES Holding (TADAWUL:2382), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for ADES Holding:

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

0.094 = ر.س1.7b ÷ (ر.س21b - ر.س3.2b) (Based on the trailing twelve months to September 2024).

So, ADES Holding has an ROCE of 9.4%. Even though it's in line with the industry average of 9.4%, it's still a low return by itself.

See our latest analysis for ADES Holding

Above you can see how the current ROCE for ADES Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ADES Holding for free.

What Does the ROCE Trend For ADES Holding Tell Us?

The returns on capital haven't changed much for ADES Holding in recent years. The company has consistently earned 9.4% for the last five years, and the capital employed within the business has risen 314% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

As we've seen above, ADES Holding's returns on capital haven't increased but it is reinvesting in the business. And in the last year, the stock has given away 14% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think ADES Holding has the makings of a multi-bagger.

One more thing: We've identified 2 warning signs with ADES Holding (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

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.

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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.