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Capital Allocation Trends At National Shipping Company of Saudi Arabia (TADAWUL:4030) Aren’t Ideal

Capital Allocation Trends At National Shipping Company of Saudi Arabia (TADAWUL:4030) Aren’t Ideal

What underlying fundamental trends can indicate that a company might be in decline? 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. And from a first read, things don’t look too good at National Shipping Company of Saudi Arabia (TADAWUL:4030), so let’s see why.

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. Analysts use this formula to calculate it for National Shipping Company of Saudi Arabia:

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

0.046 = ر.س905m ÷ (ر.س22b – ر.س2.8b) (Based on the trailing twelve months to September 2022).

Therefore, National Shipping Company of Saudi Arabia has an ROCE of 4.6%. Even though it’s in line with the industry average of 5.4%, it’s still a low return by itself.

Check out our latest analysis for National Shipping Company of Saudi Arabia

SASE:4030 Return on Capital Employed January 18th 2023

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of National Shipping Company of Saudi Arabia, check out these free graphs here.

So How Is National Shipping Company of Saudi Arabia’s ROCE Trending?

There is reason to be cautious about National Shipping Company of Saudi Arabia, given the returns are trending downwards. To be more specific, the ROCE was 6.5% 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. Since returns are falling and the business has the same amount of assets employed, this can suggest it’s a mature business that hasn’t had much growth in the last five years. So because these trends aren’t typically conducive to creating a multi-bagger, we wouldn’t hold our breath on National Shipping Company of Saudi Arabia becoming one if things continue as they have.

The Key Takeaway

In the end, the trend of lower returns on the same amount of capital isn’t typically an indication that we’re looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 44% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don’t bode well for long term performance so unless they reverse, we’d start looking elsewhere.

On a separate note, we’ve found 3 warning signs for National Shipping Company of Saudi Arabia you’ll probably want to 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.

Valuation is complex, but we’re helping make it simple.

Find out whether National Shipping Company of Saudi Arabia is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.

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