Slowing Rates Of Return At Najran Cement (TADAWUL:3002) Leave Little Room For Excitement

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Najran Cement (TADAWUL:3002) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Najran Cement, this is the formula:

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

0.098 = ر.س226m ÷ (ر.س2.6b - ر.س283m) (Based on the trailing twelve months to March 2021).

So, Najran Cement has an ROCE of 9.8%. In absolute terms, that's a low return but it's around the Basic Materials industry average of 8.5%.

Check out our latest analysis for Najran Cement

Above you can see how the current ROCE for Najran Cement 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 report for Najran Cement.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Najran Cement's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Najran Cement to be a multi-bagger going forward.

The Bottom Line

In a nutshell, Najran Cement has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 92% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, Najran Cement does come with some risks, and we've found 1 warning sign that you should be aware of.

While Najran Cement 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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