Arkan Building Materials Company (ARKAN) PJSC (ADX:EMSTEEL) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 Arkan Building Materials Company (ARKAN) PJSC (ADX:EMSTEEL) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Arkan Building Materials Company (ARKAN) PJSC is:

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

0.076 = د.إ650m ÷ (د.إ12b - د.إ3.1b) (Based on the trailing twelve months to March 2023).

Therefore, Arkan Building Materials Company (ARKAN) PJSC has an ROCE of 7.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.5%.

View our latest analysis for Arkan Building Materials Company (ARKAN) PJSC

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

What Can We Tell From Arkan Building Materials Company (ARKAN) PJSC's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 7.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 226% more capital is being employed now too. So we're very much inspired by what we're seeing at Arkan Building Materials Company (ARKAN) PJSC thanks to its ability to profitably reinvest capital.

The Bottom Line On Arkan Building Materials Company (ARKAN) PJSC's ROCE

All in all, it's terrific to see that Arkan Building Materials Company (ARKAN) PJSC is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 152% to shareholders over the last five 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 Arkan Building Materials Company (ARKAN) PJSC can keep these trends up, it could have a bright future ahead.

While Arkan Building Materials Company (ARKAN) PJSC looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether EMSTEEL is currently trading for a fair price.

While Arkan Building Materials Company (ARKAN) PJSC may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.