Here's What's Concerning About Leen Alkhair Trading's (TADAWUL:9555) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Leen Alkhair Trading (TADAWUL:9555) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 Leen Alkhair Trading, this is the formula:

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

0.046 = ر.س11m ÷ (ر.س316m - ر.س73m) (Based on the trailing twelve months to June 2024).

Thus, Leen Alkhair Trading has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 13%.

View our latest analysis for Leen Alkhair Trading

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're interested in investigating Leen Alkhair Trading's past further, check out this free graph covering Leen Alkhair Trading's past earnings, revenue and cash flow .

What Does the ROCE Trend For Leen Alkhair Trading Tell Us?

On the surface, the trend of ROCE at Leen Alkhair Trading doesn't inspire confidence. Around three years ago the returns on capital were 20%, but since then they've fallen to 4.6%. However it looks like Leen Alkhair Trading 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 may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Leen Alkhair Trading's ROCE

Bringing it all together, while we're somewhat encouraged by Leen Alkhair Trading's reinvestment in its own business, we're aware that returns are shrinking. And in the last year, the stock has given away 26% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Leen Alkhair Trading does come with some risks though, we found 7 warning signs in our investment analysis, and 4 of those are potentially serious...

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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.