National Shipping Company of Saudi Arabia (TADAWUL: 4030) has some difficulty in using its capital efficiently


What financial indicators can tell us that a business is maturing or even declining? More often than not we will see a decline to recover on capital employed (ROCE) and a decrease amount capital employed. This indicates that the company is making less profit from its investments and that its total assets are decreasing. So after taking a look at the trends within Saudi Arabian National Shipping Company (TADAWUL: 4030), we didn’t have too much hope.

What is Return on Employee Capital (ROCE)?

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for National Shipping Company of Saudi Arabia, here is the formula:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.075 = .س 1.4 b ÷ (ر.س 21 b – ر.س 2.3 b) (Based on the last twelve months up to March 2021).

So, National Shipping Company of Saudi Arabia has a ROCE of 7.5%. Even though it is in line with the industry average of 8.0%, it is still a poor performance in and of itself.

See our latest review for National Shipping Company of Saudi Arabia

SASE: 4030 Return on capital employed on July 6, 2021

Although the past is not representative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to delve into the history of National Shipping Company of Saudi Arabia profit, revenue and cash flow, check out these free graphics here.

How are the returns evolving?

Care should be taken with the National Shipping Company of Saudi Arabia as yields are trending down. To be more precise, the ROCE was 13% five years ago, but since then it has fallen noticeably. In addition to this, it should be noted that the amount of capital employed within the company has remained relatively stable. As returns decline and the company has the same number of assets employed, this may suggest that it is a mature company that has not seen much growth in the past five years. If these trends continue, we wouldn’t expect the National Shipping Company of Saudi Arabia to transform into a multi-bagger.

Our opinion on Saudi Arabia’s national shipping company ROCE

Overall, lower returns for the same amount of capital employed are not exactly the sign of a dialing machine. Investors should expect better things on the horizon as the stock has risen 27% in the past five years. Either way, we don’t like trends as they are and if they persist we think you might find better investments elsewhere.

If you want to know more about National Shipping Company of Saudi Arabia, we have spotted 3 warning signs, and 1 of them is of concern.

While Saudi Arabia’s National Shipping Company does not currently achieve the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

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