Investors Could Be Concerned With Arabian International Healthcare Holding’s (TADAWUL:9530) Returns On Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. A business that’s potentially in decline often shows two trends, a return on capital employed (ROCE) that’s declining, and a base of capital employed that’s also declining. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after we looked into Arabian International Healthcare Holding (TADAWUL:9530), the trends above didn’t look too great.

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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 Arabian International Healthcare Holding:

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

0.11 = ر.س48m ÷ (ر.س1.3b – ر.س881m) (Based on the trailing twelve months to June 2024).

Thus, Arabian International Healthcare Holding has an ROCE of 11%. In absolute terms, that’s a pretty standard return but compared to the Healthcare industry average it falls behind.

View our latest analysis for Arabian International Healthcare Holding

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’re interested in investigating Arabian International Healthcare Holding’s past further, check out this free graph covering Arabian International Healthcare Holding’s past earnings, revenue and cash flow .

What Can We Tell From Arabian International Healthcare Holding’s ROCE Trend?

We are a bit worried about the trend of returns on capital at Arabian International Healthcare Holding. About four years ago, returns on capital were 20%, however they’re now substantially lower than that as we saw above. 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. So because these trends aren’t typically conducive to creating a multi-bagger, we wouldn’t hold our breath on Arabian International Healthcare Holding becoming one if things continue as they have.

On a side note, Arabian International Healthcare Holding’s current liabilities are still rather high at 66% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we’d like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

In summary, it’s unfortunate that Arabian International Healthcare Holding is generating lower returns from the same amount of capital. Investors haven’t taken kindly to these developments, since the stock has declined 51% from where it was three years ago. With underlying trends that aren’t great in these areas, we’d consider looking elsewhere.

One final note, you should learn about the 5 warning signs we’ve spotted with Arabian International Healthcare Holding (including 2 which are a bit unpleasant) .

While Arabian International Healthcare Holding 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.