RAPCO Investment PJSC (ADX:RAPCO) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at RAPCO Investment PJSC (ADX:RAPCO) so let's look a bit deeper.

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 RAPCO Investment PJSC, this is the formula:

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

0.047 = د.إ17m ÷ (د.إ364m - د.إ8.1m) (Based on the trailing twelve months to December 2023).

Thus, RAPCO Investment PJSC has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.5%.

Check out our latest analysis for RAPCO Investment PJSC

Historical performance is a great place to start when researching a stock so above you can see the gauge for RAPCO Investment PJSC's ROCE against it's prior returns. If you'd like to look at how RAPCO Investment PJSC has performed in the past in other metrics, you can view this free graph of RAPCO Investment PJSC's past earnings, revenue and cash flow.

The Trend Of ROCE

RAPCO Investment PJSC has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 4.7%, which is always encouraging. While returns have increased, the amount of capital employed by RAPCO Investment PJSC has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

To sum it up, RAPCO Investment PJSC is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 15% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

RAPCO Investment PJSC does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

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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.