Some Investors May Be Worried About Saudia Dairy & Foodstuff's (TADAWUL:2270) Returns On Capital

There are a few key trends to look for if we want to identify the next 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. In light of that, when we looked at Saudia Dairy & Foodstuff (TADAWUL:2270) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Saudia Dairy & Foodstuff is:

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

0.13 = ر.س233m ÷ (ر.س2.3b - ر.س492m) (Based on the trailing twelve months to December 2021).

Thus, Saudia Dairy & Foodstuff has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Food industry.

View our latest analysis for Saudia Dairy & Foodstuff

Above you can see how the current ROCE for Saudia Dairy & Foodstuff compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Saudia Dairy & Foodstuff's ROCE Trending?

In terms of Saudia Dairy & Foodstuff's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 13% from 25% five years ago. However it looks like Saudia Dairy & Foodstuff might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Saudia Dairy & Foodstuff is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 64% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Saudia Dairy & Foodstuff does have some risks though, and we've spotted 1 warning sign for Saudia Dairy & Foodstuff that you might be interested in.

While Saudia Dairy & Foodstuff 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.