Returns on Capital Paint A Bright Future For Electrical Industries (TADAWUL:1303)

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Electrical Industries' (TADAWUL:1303) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Electrical Industries:

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

0.37 = ر.س320m ÷ (ر.س1.9b - ر.س1.1b) (Based on the trailing twelve months to March 2024).

Thus, Electrical Industries has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 8.2% earned by companies in a similar industry.

See our latest analysis for Electrical Industries

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 Electrical Industries has performed in the past in other metrics, you can view this free graph of Electrical Industries' past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from Electrical Industries. The data shows that returns on capital have increased substantially over the last five years to 37%. The amount of capital employed has increased too, by 29%. So we're very much inspired by what we're seeing at Electrical Industries thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 56% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Electrical Industries' ROCE

All in all, it's terrific to see that Electrical Industries is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 875% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Electrical Industries can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Electrical Industries you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.