Is Aseer Trading Tourism and Manufacturing (TADAWUL:4080) Struggling?

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after glancing at the trends within Aseer Trading Tourism and Manufacturing (TADAWUL:4080), we weren't too hopeful.

What is Return On Capital Employed (ROCE)?

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)

0.036 = ر.س85m ÷ (ر.س3.1b - ر.س750m) (Based on the trailing twelve months to September 2020).

So, Aseer Trading Tourism and Manufacturing has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Food industry average of 5.3%.

Check out our latest analysis for Aseer Trading Tourism and Manufacturing

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aseer Trading Tourism and Manufacturing's ROCE against it's prior returns. 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.

The Trend Of ROCE

The trend of returns that Aseer Trading Tourism and Manufacturing is generating are raising some concerns. The company used to generate 5.1% on its capital five years ago but it has since fallen noticeably. On top of that, the business is utilizing 38% 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.

The Bottom Line On Aseer Trading Tourism and Manufacturing's ROCE

In summary, it's unfortunate that Aseer Trading Tourism and Manufacturing is shrinking its capital base and also generating lower returns. Despite the concerning underlying trends, the stock has actually gained 23% over the last five years, so it might be that the investors are expecting the trends to reverse. 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'd like to know more about Aseer Trading Tourism and Manufacturing, we've spotted 2 warning signs, and 1 of them can't be ignored.

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.

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This article by Simply Wall St is general in nature. 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.
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