What Do The Returns At Fujairah Building Industries P.J.S.C (ADX:FBI) Mean Going Forward?

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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.

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 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)

0.094 = د.إ40m ÷ (د.إ470m - د.إ41m) (Based on the trailing twelve months to September 2020).

Therefore, Fujairah Building Industries P.J.S.C has an ROCE of 9.4%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

Check out 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 The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 48%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 8.7%, which basically reduces it's funding from the likes of short-term creditors or suppliers. 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.

Our Take On Fujairah Building Industries P.J.S.C's ROCE

To sum it up, Fujairah Building Industries P.J.S.C has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 5.9% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching Fujairah Building Industries P.J.S.C, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Fujairah Building Industries P.J.S.C 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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