National Shipping Company of Saudi Arabia (TADAWUL:4030) Has Some Difficulty Using Its Capital Effectively

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within National Shipping Company of Saudi Arabia (TADAWUL:4030), we weren't too hopeful.

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. To calculate this metric for National Shipping Company of Saudi Arabia, this is the formula:

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

0.075 = ر.س1.4b ÷ (ر.س21b - ر.س2.3b) (Based on the trailing twelve months to March 2021).

So, National Shipping Company of Saudi Arabia has an ROCE of 7.5%. Even though it's in line with the industry average of 8.0%, it's still a low return by itself.

See our latest analysis for National Shipping Company of Saudi Arabia

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 want to delve into the historical earnings, revenue and cash flow of National Shipping Company of Saudi Arabia, check out these free graphs here.

How Are Returns Trending?

There is reason to be cautious about National Shipping Company of Saudi Arabia, given the returns are trending downwards. To be more specific, the ROCE was 13% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect National Shipping Company of Saudi Arabia to turn into a multi-bagger.

Our Take On National Shipping Company of Saudi Arabia's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors must expect better things on the horizon though because the stock has risen 27% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you'd like to know more about National Shipping Company of Saudi Arabia, we've spotted 3 warning signs, and 1 of them is concerning.

While National Shipping Company of Saudi Arabia may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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