Here's What To Make Of Ras Al Khaimah for White Cement & Construction Materials P.S.C's (ADX:RAKWCT) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Ras Al Khaimah for White Cement & Construction Materials P.S.C (ADX:RAKWCT), it didn't seem to tick all of these boxes.

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. To calculate this metric for Ras Al Khaimah for White Cement & Construction Materials P.S.C, this is the formula:

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

0.018 = د.إ14m ÷ (د.إ935m - د.إ117m) (Based on the trailing twelve months to December 2020).

Thus, Ras Al Khaimah for White Cement & Construction Materials P.S.C has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 9.3%.

See our latest analysis for Ras Al Khaimah for White Cement & Construction Materials 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 want to delve into the historical earnings, revenue and cash flow of Ras Al Khaimah for White Cement & Construction Materials P.S.C, check out these free graphs here.

How Are Returns Trending?

Things have been pretty stable at Ras Al Khaimah for White Cement & Construction Materials P.S.C, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Ras Al Khaimah for White Cement & Construction Materials P.S.C in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On Ras Al Khaimah for White Cement & Construction Materials P.S.C's ROCE

In summary, Ras Al Khaimah for White Cement & Construction Materials P.S.C isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 25% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Ras Al Khaimah for White Cement & Construction Materials P.S.C and understanding this should be part of your investment process.

While Ras Al Khaimah for White Cement & Construction Materials P.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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