Here's What's Concerning About Aseer Trading Tourism and Manufacturing's (TADAWUL:4080) Returns On Capital

By
Simply Wall St
Published
November 21, 2021
SASE:4080
Source: Shutterstock

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Aseer Trading Tourism and Manufacturing (TADAWUL:4080), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Aseer Trading Tourism and Manufacturing is:

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

0.018 = ر.س43m ÷ (ر.س3.2b - ر.س847m) (Based on the trailing twelve months to September 2021).

So, Aseer Trading Tourism and Manufacturing has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Food industry average of 8.7%.

See our latest analysis for Aseer Trading Tourism and Manufacturing

roce
SASE:4080 Return on Capital Employed November 22nd 2021

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 Aseer Trading Tourism and Manufacturing, check out these free graphs here.

So How Is Aseer Trading Tourism and Manufacturing's ROCE Trending?

We are a bit anxious about the trends of ROCE at Aseer Trading Tourism and Manufacturing. The company used to generate 4.3% on its capital five years ago but it has since fallen noticeably. On top of that, the business is utilizing 33% less capital within its operations. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

Our Take On Aseer Trading Tourism and Manufacturing's ROCE

To see Aseer Trading Tourism and Manufacturing reducing the capital employed in the business in tandem with diminishing returns, is concerning. In spite of that, the stock has delivered a 39% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to continue researching Aseer Trading Tourism and Manufacturing, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Aseer Trading Tourism and Manufacturing isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.