Some Investors May Be Worried About Al-Saif Stores for Development & Investment's (TADAWUL:4192) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Al-Saif Stores for Development & Investment (TADAWUL:4192) 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?

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. The formula for this calculation on Al-Saif Stores for Development & Investment is:

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

0.15 = ر.س89m ÷ (ر.س823m - ر.س225m) (Based on the trailing twelve months to September 2023).

Thus, Al-Saif Stores for Development & Investment has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Specialty Retail industry average of 16%.

Check out our latest analysis for Al-Saif Stores for Development & Investment

Historical performance is a great place to start when researching a stock so above you can see the gauge for Al-Saif Stores for Development & Investment's 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 Al-Saif Stores for Development & Investment.

What Does the ROCE Trend For Al-Saif Stores for Development & Investment Tell Us?

On the surface, the trend of ROCE at Al-Saif Stores for Development & Investment doesn't inspire confidence. Around four years ago the returns on capital were 50%, but since then they've fallen to 15%. However it looks like Al-Saif Stores for Development & Investment might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Al-Saif Stores for Development & Investment is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 3.3% in the last year to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Al-Saif Stores for Development & Investment does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.