Returns On Capital At Naba Al Saha Medical Services (TADAWUL:9546) Paint A Concerning Picture

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Naba Al Saha Medical Services (TADAWUL:9546) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Naba Al Saha Medical Services, this is the formula:

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

0.16 = ر.س40m ÷ (ر.س286m - ر.س35m) (Based on the trailing twelve months to June 2024).

So, Naba Al Saha Medical Services has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Healthcare industry average of 15%.

View our latest analysis for Naba Al Saha Medical Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for Naba Al Saha Medical Services' ROCE against it's prior returns. If you're interested in investigating Naba Al Saha Medical Services' past further, check out this free graph covering Naba Al Saha Medical Services' past earnings, revenue and cash flow.

What Can We Tell From Naba Al Saha Medical Services' ROCE Trend?

On the surface, the trend of ROCE at Naba Al Saha Medical Services doesn't inspire confidence. Around three years ago the returns on capital were 22%, but since then they've fallen to 16%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Naba Al Saha Medical Services is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 29% to shareholders over the last year. So should these growth trends continue, we'd be optimistic on the stock going forward.

Naba Al Saha Medical Services does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.