Salik Company P.J.S.C (DFM:SALIK) Has More To Do To Multiply In Value Going Forward

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So while Salik Company P.J.S.C (DFM:SALIK) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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

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. The formula for this calculation on Salik Company P.J.S.C is:

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

0.31 = د.إ1.4b ÷ (د.إ5.1b - د.إ607m) (Based on the trailing twelve months to September 2024).

Thus, Salik Company P.J.S.C has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 6.3% earned by companies in a similar industry.

View our latest analysis for Salik Company P.J.S.C

In the above chart we have measured Salik Company P.J.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Salik Company P.J.S.C for free.

So How Is Salik Company P.J.S.C's ROCE Trending?

Over the past two years, Salik Company P.J.S.C's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So while the current operations are delivering respectable returns, unless capital employed increases we'd be hard-pressed to believe it's a multi-bagger going forward. That probably explains why Salik Company P.J.S.C has been paying out 96% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

In Conclusion...

In summary, Salik Company P.J.S.C isn't compounding its earnings but is generating decent returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 73% over the last year. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Salik Company P.J.S.C, you might be interested to know about the 1 warning sign that our analysis has discovered.

Salik Company P.J.S.C is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.