Returns At Al-Modawat Specialized Medical (TADAWUL:9594) Appear To Be Weighed Down

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So, when we ran our eye over Al-Modawat Specialized Medical's (TADAWUL:9594) trend of ROCE, we liked what we saw.

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 Al-Modawat Specialized Medical:

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

0.15 = ر.س14m ÷ (ر.س116m - ر.س25m) (Based on the trailing twelve months to June 2024).

Therefore, Al-Modawat Specialized Medical has an ROCE of 15%. By itself that's a normal return on capital and it's in line with the industry's average returns of 15%.

Check out our latest analysis for Al-Modawat Specialized Medical

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

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 153% more capital in the last two years, and the returns on that capital have remained stable at 15%. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last two years, the reduction in current liabilities to 21% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

To sum it up, Al-Modawat Specialized Medical has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 76% to shareholders over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Al-Modawat Specialized Medical does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Al-Modawat Specialized Medical 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. 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.