Here's What's Concerning About Advance International Company for Communication and Information Technology's (TADAWUL:9524) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Advance International Company for Communication and Information Technology (TADAWUL:9524), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.17 = ر.س7.0m ÷ (ر.س59m - ر.س18m) (Based on the trailing twelve months to June 2023).

So, Advance International Company for Communication and Information Technology has an ROCE of 17%. In absolute terms, that's a pretty standard return but compared to the IT industry average it falls behind.

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'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.

How Are Returns Trending?

On the surface, the trend of ROCE at Advance International Company for Communication and Information Technology doesn't inspire confidence. To be more specific, ROCE has fallen from 34% over the last four years. 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.

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 59% to shareholders over the last year. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a separate note, we've found 2 warning signs for Advance International Company for Communication and Information Technology you'll probably want to know about.

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.