Shareholders Would Enjoy A Repeat Of Middle East Specialized Cables' (TADAWUL:2370) Recent Growth In Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Speaking of which, we noticed some great changes in Middle East Specialized Cables' (TADAWUL:2370) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Middle East Specialized Cables:

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

0.21 = ر.س104m ÷ (ر.س878m - ر.س390m) (Based on the trailing twelve months to September 2024).

Thus, Middle East Specialized Cables has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Electrical industry average of 8.3%.

Check out our latest analysis for Middle East Specialized Cables

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

What The Trend Of ROCE Can Tell Us

Middle East Specialized Cables has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 21% on its capital. While returns have increased, the amount of capital employed by Middle East Specialized Cables 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.

On a side note, Middle East Specialized Cables' current liabilities are still rather high at 44% of total assets. 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.

The Key Takeaway

To sum it up, Middle East Specialized Cables is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 325% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Middle East Specialized Cables looks impressive, no company is worth an infinite price. The intrinsic value infographic for 2370 helps visualize whether it is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.