Returns On Capital At Leen Alkhair Trading (TADAWUL:9555) Paint A Concerning Picture

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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.

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. 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)

0.07 = ر.س17m ÷ (ر.س298m - ر.س61m) (Based on the trailing twelve months to December 2023).

So, Leen Alkhair Trading has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10%.

See 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.

So How Is Leen Alkhair Trading's ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 24% three years ago, while the business's capital employed increased by 214%. Usually this isn't ideal, but given Leen Alkhair Trading conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Leen Alkhair Trading probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

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. Since the stock has declined 32% over the last year, investors may not be too optimistic on this trend improving either. 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.

On a final note, we found 5 warning signs for Leen Alkhair Trading (2 are concerning) you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com