Returns On Capital Are Showing Encouraging Signs At Sharjah Cement and Industrial Development (PJSC) (ADX:SCIDC)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Sharjah Cement and Industrial Development (PJSC) (ADX:SCIDC) so let's look a bit deeper.

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

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 Sharjah Cement and Industrial Development (PJSC), this is the formula:

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

0.026 = د.إ36m ÷ (د.إ2.0b - د.إ560m) (Based on the trailing twelve months to December 2023).

Therefore, Sharjah Cement and Industrial Development (PJSC) has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 7.7%.

See our latest analysis for Sharjah Cement and Industrial Development (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'd like to look at how Sharjah Cement and Industrial Development (PJSC) has performed in the past in other metrics, you can view this free graph of Sharjah Cement and Industrial Development (PJSC)'s past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While there are companies with higher returns on capital out there, we still find the trend at Sharjah Cement and Industrial Development (PJSC) promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 239% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To sum it up, Sharjah Cement and Industrial Development (PJSC) is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 26% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Sharjah Cement and Industrial Development (PJSC) does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

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.