Al Hassan Ghazi Ibrahim Shaker (TADAWUL:1214) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Al Hassan Ghazi Ibrahim Shaker (TADAWUL:1214) looks quite promising in regards to its trends of return on capital.

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 Al Hassan Ghazi Ibrahim Shaker is:

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

0.11 = ر.س87m ÷ (ر.س1.6b - ر.س825m) (Based on the trailing twelve months to September 2024).

Therefore, Al Hassan Ghazi Ibrahim Shaker has an ROCE of 11%. In isolation, that's a pretty standard return but against the Trade Distributors industry average of 16%, it's not as good.

Check out our latest analysis for Al Hassan Ghazi Ibrahim Shaker

Above you can see how the current ROCE for Al Hassan Ghazi Ibrahim Shaker compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Al Hassan Ghazi Ibrahim Shaker .

What The Trend Of ROCE Can Tell Us

We're delighted to see that Al Hassan Ghazi Ibrahim Shaker is reaping rewards from its investments and has now broken into profitability. The company now earns 11% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Al Hassan Ghazi Ibrahim Shaker has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Another thing to note, Al Hassan Ghazi Ibrahim Shaker has a high ratio of current liabilities to total assets of 50%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

To sum it up, Al Hassan Ghazi Ibrahim Shaker is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 138% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 1214 on our platform that is definitely worth checking out.

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.