Returns On Capital At Dallah Healthcare (TADAWUL:4004) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Dallah Healthcare (TADAWUL:4004), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Dallah Healthcare:

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

0.095 = ر.س483m ÷ (ر.س6.1b - ر.س1.0b) (Based on the trailing twelve months to September 2023).

So, Dallah Healthcare has an ROCE of 9.5%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 16%.

Check out our latest analysis for Dallah Healthcare

Above you can see how the current ROCE for Dallah Healthcare 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 analyst report for Dallah Healthcare .

How Are Returns Trending?

The returns on capital haven't changed much for Dallah Healthcare in recent years. Over the past five years, ROCE has remained relatively flat at around 9.5% and the business has deployed 121% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Dallah Healthcare's ROCE

In summary, Dallah Healthcare has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 376% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 1 warning sign for Dallah Healthcare that we think you should be aware of.

While Dallah Healthcare may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.