Mohammed Hasan AlNaqool Sons' (TADAWUL:9514) Returns On Capital Not Reflecting Well On The Business

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. In light of that, when we looked at Mohammed Hasan AlNaqool Sons (TADAWUL:9514) and its ROCE trend, we weren't exactly thrilled.

What Is 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)

0.031 = ر.س2.3m ÷ (ر.س104m - ر.س30m) (Based on the trailing twelve months to December 2023).

Therefore, Mohammed Hasan AlNaqool Sons has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 6.6%.

View 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Mohammed Hasan AlNaqool Sons.

The Trend Of ROCE

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 10% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Mohammed Hasan AlNaqool Sons' ROCE

In summary, Mohammed Hasan AlNaqool Sons is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 70% in the last three years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to know some of the risks facing Mohammed Hasan AlNaqool Sons we've found 4 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Mohammed Hasan AlNaqool Sons may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.