Returns At International Holding Company PJSC (ADX:IHC) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at International Holding Company PJSC (ADX:IHC) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on International Holding Company PJSC is:

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

0.12 = د.إ7.8b ÷ (د.إ89b - د.إ24b) (Based on the trailing twelve months to December 2021).

Therefore, International Holding Company PJSC has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.3% generated by the Food industry.

See 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.

What Does the ROCE Trend For International Holding Company PJSC Tell Us?

The fact that International Holding Company PJSC is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making three years ago but is is now generating 12% on its capital. Not only that, but the company is utilizing 10,118% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

Long story short, we're delighted to see that International Holding Company PJSC's reinvestment activities have paid off and the company is now profitable. And a remarkable 140% total return over the last year tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

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.