Be Wary Of Advance International Company for Communication and Information Technology (TADAWUL:9524) And Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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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What Is Return On Capital Employed (ROCE)?

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. 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)

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

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

Check out 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're interested in investigating Advance International Company for Communication and Information Technology's past further, check out this free graph covering Advance International Company for Communication and Information Technology's past earnings, revenue and cash flow .

The Trend Of ROCE

On the surface, the trend of ROCE at Advance International Company for Communication and Information Technology doesn't inspire 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. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

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 there could be an opportunity here if other metrics look good too, because the stock has declined 49% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Advance International Company for Communication and Information Technology does have some risks, we noticed 6 warning signs (and 2 which don't sit too well with us) we think you should know about.

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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.