Naseej for Technology's (TADAWUL:9538) Returns Have Hit A Wall

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Naseej for Technology's (TADAWUL:9538) ROCE trend, we were pretty happy with what we saw.

We've discovered 3 warning signs about Naseej for Technology. View them for free.

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. The formula for this calculation on Naseej for Technology is:

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

0.10 = ر.س16m ÷ (ر.س258m - ر.س105m) (Based on the trailing twelve months to June 2024).

Thus, Naseej for Technology has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the IT industry average it falls behind.

See our latest analysis for Naseej for Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Naseej for Technology'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 Naseej for Technology.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. Over the past four years, ROCE has remained relatively flat at around 10% and the business has deployed 68% more capital into its operations. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Naseej for Technology has done well to reduce current liabilities to 41% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

What We Can Learn From Naseej for Technology's ROCE

The main thing to remember is that Naseej for Technology has proven its ability to continually reinvest at respectable rates of return. Yet over the last three years the stock has declined 65%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One more thing to note, we've identified 3 warning signs with Naseej for Technology and understanding them should be part of your investment process.

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.