What These Trends Mean At Tabuk Cement (TADAWUL:3090)

What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. On that note, looking into Tabuk Cement (TADAWUL:3090), we weren't too upbeat about how things were going.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Tabuk Cement is:

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

0.023 = ر.س35m ÷ (ر.س1.8b - ر.س256m) (Based on the trailing twelve months to September 2020).

Thus, Tabuk Cement has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 9.2%.

View our latest analysis for Tabuk Cement

Above you can see how the current ROCE for Tabuk Cement compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Tabuk Cement's ROCE Trend?

We are a bit worried about the trend of returns on capital at Tabuk Cement. About five years ago, returns on capital were 5.8%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Tabuk Cement to turn into a multi-bagger.

Our Take On Tabuk Cement's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Despite the concerning underlying trends, the stock has actually gained 39% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

While Tabuk Cement doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Tabuk 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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