Mobile Telecommunications Company Saudi Arabia's (TADAWUL:7030) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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)

0.054 = ر.س1.1b ÷ (ر.س29b - ر.س8.7b) (Based on the trailing twelve months to March 2023).

Thus, Mobile Telecommunications Company Saudi Arabia has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Wireless Telecom industry average of 9.4%.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free report for Mobile Telecommunications Company Saudi Arabia.

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

In terms of Mobile Telecommunications Company Saudi Arabia's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.4% for the last five years, and the capital employed within the business has risen 33% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Mobile Telecommunications Company Saudi Arabia has done well to reduce current liabilities to 30% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

As we've seen above, Mobile Telecommunications Company Saudi Arabia's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 107% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing: We've identified 5 warning signs with Mobile Telecommunications Company Saudi Arabia (at least 2 which can't be ignored) , and understanding these would certainly be useful.

While Mobile Telecommunications Company Saudi Arabia may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.