International Holding Company PJSC's (ADX:IHC) Returns On Capital Are Heading Higher

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at International Holding Company PJSC (ADX:IHC) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for International Holding Company PJSC:

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

0.047 = د.إ7.1b ÷ (د.إ199b - د.إ49b) (Based on the trailing twelve months to September 2022).

Therefore, International Holding Company PJSC has an ROCE of 4.7%. In absolute terms, that's a low return but it's around the Industrials industry average of 4.0%.

Check out our latest analysis for International Holding Company PJSC

Historical performance is a great place to start when researching a stock so above you can see the gauge for International Holding Company PJSC's ROCE against it's prior returns. If you're interested in investigating International Holding Company PJSC's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is International Holding Company PJSC's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 4.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 9,557%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that International Holding Company PJSC can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 6,707% to shareholders over the last three years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if International Holding Company PJSC can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for International Holding Company PJSC you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.