Returns Are Gaining Momentum At Al Hassan Ghazi Ibrahim Shaker (TADAWUL:1214)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Al Hassan Ghazi Ibrahim Shaker (TADAWUL:1214) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. 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)

0.094 = ر.س71m ÷ (ر.س1.7b - ر.س962m) (Based on the trailing twelve months to September 2023).

Therefore, Al Hassan Ghazi Ibrahim Shaker has an ROCE of 9.4%. On its own that's a low return, but compared to the average of 7.5% generated by the Trade Distributors industry, it's much better.

View our latest analysis for Al Hassan Ghazi Ibrahim Shaker

Historical performance is a great place to start when researching a stock so above you can see the gauge for Al Hassan Ghazi Ibrahim Shaker's ROCE against it's prior returns. If you're interested in investigating Al Hassan Ghazi Ibrahim Shaker's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Al Hassan Ghazi Ibrahim Shaker's ROCE Trend?

Al Hassan Ghazi Ibrahim Shaker has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 9.4% 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. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

On a side note, Al Hassan Ghazi Ibrahim Shaker's current liabilities are still rather high at 56% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Al Hassan Ghazi Ibrahim Shaker's ROCE

As discussed above, Al Hassan Ghazi Ibrahim Shaker appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 182% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Al Hassan Ghazi Ibrahim Shaker that we think you should be aware of.

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.