These Return Metrics Don't Make Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) Look Too Strong

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211), we weren't too hopeful.

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. The formula for this calculation on Saudi Arabian Mining Company (Ma'aden) is:

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

0.0088 = ر.س765m ÷ (ر.س97b - ر.س10b) (Based on the trailing twelve months to December 2020).

Therefore, Saudi Arabian Mining Company (Ma'aden) has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 7.6%.

See our latest analysis for Saudi Arabian Mining Company (Ma'aden)

In the above chart we have measured Saudi Arabian Mining Company (Ma'aden)'s prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

In terms of Saudi Arabian Mining Company (Ma'aden)'s historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 1.6%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Saudi Arabian Mining Company (Ma'aden) to turn into a multi-bagger.

Our Take On Saudi Arabian Mining Company (Ma'aden)'s ROCE

In summary, it's unfortunate that Saudi Arabian Mining Company (Ma'aden) is generating lower returns from the same amount of capital. Yet despite these concerning fundamentals, the stock has performed strongly with a 96% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Saudi Arabian Mining Company (Ma'aden) (including 1 which doesn't sit too well with us) .

While Saudi Arabian Mining Company (Ma'aden) 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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