- Saudi Arabia
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- Packaging
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- SASE:3007
Here's What's Concerning About Zahrat Al Waha For Trading's (TADAWUL:3007) Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So while Zahrat Al Waha For Trading (TADAWUL:3007) has a high ROCE right now, lets see what we can decipher from how returns are changing.
What is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Zahrat Al Waha For Trading:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = ر.س64m ÷ (ر.س518m - ر.س212m) (Based on the trailing twelve months to September 2021).
Thus, Zahrat Al Waha For Trading has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Packaging industry average of 11%.
See our latest analysis for Zahrat Al Waha For Trading
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Zahrat Al Waha For Trading has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
In terms of Zahrat Al Waha For Trading's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 29% where it was five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
On a separate but related note, it's important to know that Zahrat Al Waha For Trading has a current liabilities to total assets ratio of 41%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
Our Take On Zahrat Al Waha For Trading's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Zahrat Al Waha For Trading. And long term investors must be optimistic going forward because the stock has returned a huge 137% to shareholders in the last three years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.
Like most companies, Zahrat Al Waha For Trading does come with some risks, and we've found 1 warning sign that you should be aware of.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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Access Free AnalysisThis 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.
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About SASE:3007
Zahrat Al Waha For Trading
Engages in the manufacturing and sale of PET preforms and caps in the Kingdom of Saudi Arabia.
Slight with mediocre balance sheet.