The Return Trends At Fujairah Building Industries P.J.S.C (ADX:FBI) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at Fujairah Building Industries P.J.S.C (ADX:FBI) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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 Fujairah Building Industries P.J.S.C, this is the formula:

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

0.088 = د.إ39m ÷ (د.إ478m - د.إ36m) (Based on the trailing twelve months to December 2020).

Thus, Fujairah Building Industries P.J.S.C has an ROCE of 8.8%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

View our latest analysis for Fujairah Building Industries P.J.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're interested in investigating Fujairah Building Industries P.J.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Fujairah Building Industries P.J.S.C'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 numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.8%. Basically the business is earning more per dollar of capital invested and in addition to that, 55% more capital is being employed now too. So we're very much inspired by what we're seeing at Fujairah Building Industries P.J.S.C thanks to its ability to profitably reinvest capital.

One more thing to note, Fujairah Building Industries P.J.S.C has decreased current liabilities to 7.6% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Fujairah Building Industries P.J.S.C has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Fujairah Building Industries P.J.S.C has. Since the stock has returned a solid 99% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Fujairah Building Industries P.J.S.C, we've discovered 2 warning signs that you should be aware of.

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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