Gulf Medical Projects Company (PJSC) (ADX:GMPC) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Gulf Medical Projects Company (PJSC) (ADX:GMPC) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Gulf Medical Projects Company (PJSC):

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

0.018 = د.إ21m ÷ (د.إ1.3b - د.إ138m) (Based on the trailing twelve months to September 2022).

Thus, Gulf Medical Projects Company (PJSC) has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 13%.

See our latest analysis for Gulf Medical Projects 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 want to delve into the historical earnings, revenue and cash flow of Gulf Medical Projects Company (PJSC), check out these free graphs here.

So How Is Gulf Medical Projects Company (PJSC)'s ROCE Trending?

Like most people, we're pleased that Gulf Medical Projects Company (PJSC) is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 1.8% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 31%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

What We Can Learn From Gulf Medical Projects Company (PJSC)'s ROCE

In a nutshell, we're pleased to see that Gulf Medical Projects Company (PJSC) has been able to generate higher returns from less capital. Since the stock has only returned 38% 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.

If you want to know some of the risks facing Gulf Medical Projects Company (PJSC) we've found 3 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

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.