How Well Is Batic Investments and Logistics (TADAWUL:4110) Allocating Its Capital?

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into Batic Investments and Logistics (TADAWUL:4110), we weren't too upbeat about how things were going.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Batic Investments and Logistics is:

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

0.031 = ر.س16m ÷ (ر.س672m - ر.س156m) (Based on the trailing twelve months to September 2020).

Thus, Batic Investments and Logistics has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Transportation industry average of 5.6%.

View our latest analysis for Batic Investments and Logistics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Batic Investments and Logistics' ROCE against it's prior returns. If you're interested in investigating Batic Investments and Logistics' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Batic Investments and Logistics' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 11% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Batic Investments and Logistics to turn into a multi-bagger.

The Bottom Line

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 17% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Batic Investments and Logistics does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think 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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