Batic Investment and Logistics' (TADAWUL:4110) Returns On Capital Not Reflecting Well On The Business

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Batic Investment and Logistics (TADAWUL:4110), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Batic Investment and Logistics, this is the formula:

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

0.0012 = ر.س1.2m ÷ (ر.س1.1b - ر.س163m) (Based on the trailing twelve months to March 2022).

So, Batic Investment and Logistics has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Transportation industry average of 4.9%.

Check out our latest analysis for Batic Investment and Logistics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Batic Investment and Logistics' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Batic Investment and Logistics, check out these free graphs here.

What Does the ROCE Trend For Batic Investment and Logistics Tell Us?

When we looked at the ROCE trend at Batic Investment and Logistics, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 0.1% from 7.6% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Batic Investment and Logistics' ROCE

We're a bit apprehensive about Batic Investment and Logistics because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we've found 2 warning signs for Batic Investment and Logistics that we think you should be aware of.

While Batic Investment and Logistics 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.