Aldrees Petroleum and Transport Services (TADAWUL:4200) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Aldrees Petroleum and Transport Services (TADAWUL:4200) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Aldrees Petroleum and Transport Services, this is the formula:

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

0.093 = ر.س428m ÷ (ر.س7.2b - ر.س2.6b) (Based on the trailing twelve months to September 2023).

Therefore, Aldrees Petroleum and Transport Services has an ROCE of 9.3%. On its own, that's a low figure but it's around the 11% average generated by the Oil and Gas industry.

See our latest analysis for Aldrees Petroleum and Transport Services

Above you can see how the current ROCE for Aldrees Petroleum and Transport Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Aldrees Petroleum and Transport Services.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Aldrees Petroleum and Transport Services doesn't inspire confidence. To be more specific, ROCE has fallen from 16% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, Aldrees Petroleum and Transport Services has decreased its current liabilities to 36% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Aldrees Petroleum and Transport Services' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Aldrees Petroleum and Transport Services is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 463% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

Aldrees Petroleum and Transport Services could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Aldrees Petroleum and Transport Services 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.