The 22% Return On Capital At International Holding Company PJSC (ADX:IHC) Got Our Attention

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at International Holding Company PJSC's (ADX:IHC) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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 International Holding Company PJSC, this is the formula:

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

0.22 = د.إ2.0b ÷ (د.إ14b - د.إ4.9b) (Based on the trailing twelve months to December 2020).

Thus, International Holding Company PJSC has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

Check out our latest analysis for International Holding Company PJSC

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 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?

We're delighted to see that International Holding Company PJSC is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses two years ago, but now it's earning 22% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, International Holding Company PJSC is utilizing 1,337% more capital than it was two years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 35% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

In Conclusion...

In summary, it's great to see that International Holding Company PJSC has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. 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.

One more thing, we've spotted 1 warning sign facing International Holding Company PJSC that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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