Does Ras Al Khaimah Poultry & Feeding P.S.C (ADX:RAPCO) Have The Makings Of A Multi-Bagger?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Ras Al Khaimah Poultry & Feeding P.S.C's (ADX:RAPCO) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Ras Al Khaimah Poultry & Feeding P.S.C, this is the formula:

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

0.011 = د.إ3.3m ÷ (د.إ331m - د.إ28m) (Based on the trailing twelve months to December 2020).

Thus, Ras Al Khaimah Poultry & Feeding P.S.C has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.9%.

View our latest analysis for Ras Al Khaimah Poultry & Feeding P.S.C

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'd like to look at how Ras Al Khaimah Poultry & Feeding P.S.C has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Ras Al Khaimah Poultry & Feeding P.S.C Tell Us?

While the ROCE is still rather low for Ras Al Khaimah Poultry & Feeding P.S.C, we're glad to see it heading in the right direction. The data shows that returns on capital have increased by 2,025% over the trailing five years. The company is now earning د.إ0.01 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 26% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Ras Al Khaimah Poultry & Feeding P.S.C may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Ras Al Khaimah Poultry & Feeding P.S.C's ROCE

In summary, it's great to see that Ras Al Khaimah Poultry & Feeding P.S.C has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 3.8% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing: We've identified 4 warning signs with Ras Al Khaimah Poultry & Feeding P.S.C (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

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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