There Are Reasons To Feel Uneasy About Alqemam for Computer Systems' (TADAWUL:9558) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So while Alqemam for Computer Systems (TADAWUL:9558) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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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. The formula for this calculation on Alqemam for Computer Systems is:

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

0.31 = ر.س24m ÷ (ر.س85m - ر.س7.2m) (Based on the trailing twelve months to June 2024).

Therefore, Alqemam for Computer Systems has an ROCE of 31%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

View our latest analysis for Alqemam for Computer Systems

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

What Can We Tell From Alqemam for Computer Systems' ROCE Trend?

When we looked at the ROCE trend at Alqemam for Computer Systems, we didn't gain much confidence. To be more specific, while the ROCE is still high, it's fallen from 40% where it was three years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Alqemam for Computer Systems' 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 Alqemam for Computer Systems. In light of this, the stock has only gained 1.7% over the last year. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One more thing: We've identified 4 warning signs with Alqemam for Computer Systems (at least 2 which are concerning) , and understanding them would certainly be useful.

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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.