Investors Met With Slowing Returns on Capital At United International Transportation (TADAWUL:4260)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over United International Transportation's (TADAWUL:4260) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for United International Transportation:

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

0.13 = ر.س268m ÷ (ر.س2.5b - ر.س524m) (Based on the trailing twelve months to December 2022).

So, United International Transportation has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 5.9% it's much better.

See our latest analysis for United International Transportation

In the above chart we have measured United International Transportation'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 United International Transportation.

What Can We Tell From United International Transportation's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 71% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, United International Transportation has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 137% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

United International Transportation does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While United International Transportation isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.