Investors Could Be Concerned With Mohammed Hasan AlNaqool Sons' (TADAWUL:9514) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. In light of that, when we looked at Mohammed Hasan AlNaqool Sons (TADAWUL:9514) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Mohammed Hasan AlNaqool Sons is:

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

0.09 = ر.س6.0m ÷ (ر.س103m - ر.س37m) (Based on the trailing twelve months to December 2024).

Therefore, Mohammed Hasan AlNaqool Sons has an ROCE of 9.0%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 7.3%.

Check out our latest analysis for Mohammed Hasan AlNaqool Sons

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mohammed Hasan AlNaqool Sons' ROCE against it's prior returns. If you're interested in investigating Mohammed Hasan AlNaqool Sons' past further, check out this free graph covering Mohammed Hasan AlNaqool Sons' past earnings, revenue and cash flow.

What Can We Tell From Mohammed Hasan AlNaqool Sons' ROCE Trend?

When we looked at the ROCE trend at Mohammed Hasan AlNaqool Sons, we didn't gain much confidence. To be more specific, ROCE has fallen from 17% over the last five years. 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.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 36%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 9.0%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Key Takeaway

While returns have fallen for Mohammed Hasan AlNaqool Sons in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 49% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 3 warning signs with Mohammed Hasan AlNaqool Sons (at least 1 which is potentially serious) , and understanding them would certainly be useful.

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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.