Advance International Company for Communication and Information Technology (TADAWUL:9524) Might Be Having Difficulty Using Its Capital Effectively

What trends should we look for it we want to identify stocks that can 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. Although, when we looked at Advance International Company for Communication and Information Technology (TADAWUL:9524), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Advance International Company for Communication and Information Technology, this is the formula:

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

0.078 = ر.س4.0m ÷ (ر.س70m - ر.س19m) (Based on the trailing twelve months to June 2024).

Thus, Advance International Company for Communication and Information Technology has an ROCE of 7.8%. In absolute terms, that's a low return and it also under-performs the IT industry average of 29%.

View our latest analysis for Advance International Company for Communication and Information Technology

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Advance International Company for Communication and Information Technology.

The Trend Of ROCE

When we looked at the ROCE trend at Advance International Company for Communication and Information Technology, we didn't gain much confidence. Around five years ago the returns on capital were 34%, but since then they've fallen to 7.8%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Advance International Company for Communication and Information Technology'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 Advance International Company for Communication and Information Technology. And the stock has followed suit returning a meaningful 34% to shareholders over the last year. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you'd like to know more about Advance International Company for Communication and Information Technology, we've spotted 5 warning signs, and 2 of them are potentially serious.

While Advance International Company for Communication and Information Technology 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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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.