Some Investors May Be Worried About United International Transportation's (TADAWUL:4260) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after briefly looking over the numbers, we don't think United International Transportation (TADAWUL:4260) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

We've discovered 2 warning signs about United International Transportation. View them for free.

Understanding 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 United International Transportation, this is the formula:

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

0.10 = ر.س393m ÷ (ر.س5.0b - ر.س1.1b) (Based on the trailing twelve months to December 2024).

Thus, United International Transportation has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 7.1% it's much better.

View 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, you can check out the forecasts from the analysts covering United International Transportation for free.

What Does the ROCE Trend For United International Transportation Tell Us?

On the surface, the trend of ROCE at United International Transportation doesn't inspire confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 10%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On United International Transportation's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for United International Transportation. And long term investors must be optimistic going forward because the stock has returned a huge 238% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you want to know some of the risks facing United International Transportation we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

While United International Transportation 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.