Here's What To Make Of Mobile Telecommunications Company Saudi Arabia's (TADAWUL:7030) Decelerating Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030), it didn't seem to tick all of these boxes.

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 Mobile Telecommunications Company Saudi Arabia:

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

0.062 = ر.س919m ÷ (ر.س27b - ر.س12b) (Based on the trailing twelve months to September 2024).

Thus, Mobile Telecommunications Company Saudi Arabia has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 10%.

Check out our latest analysis for Mobile Telecommunications Company Saudi Arabia

Above you can see how the current ROCE for Mobile Telecommunications Company Saudi Arabia compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mobile Telecommunications Company Saudi Arabia .

What Can We Tell From Mobile Telecommunications Company Saudi Arabia's ROCE Trend?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 36% in that same period. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 45% of total assets, this reported ROCE would probably be less than6.2% because total capital employed would be higher.The 6.2% ROCE could be even lower if current liabilities weren't 45% of total assets, because the the formula would show a larger base of total capital employed. Additionally, this high level of current liabilities isn't ideal because it means the company's suppliers (or short-term creditors) are effectively funding a large portion of the business.

In Conclusion...

In summary, Mobile Telecommunications Company Saudi Arabia isn't reinvesting funds back into the business and returns aren't growing. And in the last five years, the stock has given away 11% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Mobile Telecommunications Company Saudi Arabia has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Mobile Telecommunications Company Saudi Arabia (of which 1 can't be ignored!) that you should know about.

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.