Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030) Could Be At Risk Of Shrinking As A Company

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030), so let's see why.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Mobile Telecommunications Company Saudi Arabia, this is the formula:

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

0.045 = ر.س871m ÷ (ر.س27b - ر.س7.9b) (Based on the trailing twelve months to December 2023).

So, Mobile Telecommunications Company Saudi Arabia has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Wireless Telecom industry average of 10%.

View our latest analysis for Mobile Telecommunications Company Saudi Arabia

In the above chart we have measured Mobile Telecommunications Company Saudi Arabia's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Mobile Telecommunications Company Saudi Arabia .

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Mobile Telecommunications Company Saudi Arabia. To be more specific, the ROCE was 6.4% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Mobile Telecommunications Company Saudi Arabia to turn into a multi-bagger.

Our Take On Mobile Telecommunications Company Saudi Arabia's ROCE

In summary, it's unfortunate that Mobile Telecommunications Company Saudi Arabia is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 11% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Mobile Telecommunications Company Saudi Arabia (including 2 which don't sit too well with us) .

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.