Returns On Capital Signal Tricky Times Ahead For SABIC Agri-Nutrients (TADAWUL:2020)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at SABIC Agri-Nutrients (TADAWUL:2020), it didn't seem to tick all of these boxes.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for SABIC Agri-Nutrients, this is the formula:

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

0.14 = ر.س3.2b ÷ (ر.س25b - ر.س2.3b) (Based on the trailing twelve months to September 2024).

Thus, SABIC Agri-Nutrients has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 4.3% it's much better.

Check out our latest analysis for SABIC Agri-Nutrients

Above you can see how the current ROCE for SABIC Agri-Nutrients compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for SABIC Agri-Nutrients .

The Trend Of ROCE

In terms of SABIC Agri-Nutrients' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 18% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On SABIC Agri-Nutrients' ROCE

In summary, we're somewhat concerned by SABIC Agri-Nutrients' diminishing returns on increasing amounts of capital. However the stock has delivered a 91% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you want to continue researching SABIC Agri-Nutrients, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.