Advance International Company for Communication and Information Technology's (TADAWUL:9524) 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? 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 Advance International Company for Communication and Information Technology (TADAWUL:9524) and its ROCE trend, we weren't exactly thrilled.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Advance International Company for Communication and Information Technology:

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

0.047 = ر.س2.4m ÷ (ر.س69m - ر.س18m) (Based on the trailing twelve months to December 2024).

So, Advance International Company for Communication and Information Technology has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the IT industry average of 27%.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for Advance International Company for Communication and Information Technology's ROCE against it's prior returns. If you'd like to look at how Advance International Company for Communication and Information Technology has performed in the past in other metrics, you can view this free graph of Advance International Company for Communication and Information Technology's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Advance International Company for Communication and Information Technology's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 4.7% from 39% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Advance International Company for Communication and Information Technology has done well to pay down its current liabilities to 26% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Advance International Company for Communication and Information Technology's ROCE

In summary, Advance International Company for Communication and Information Technology is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 41% in the last three years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Advance International Company for Communication and Information Technology does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is concerning...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.