Many Would Be Envious Of National Building and Marketing's (TADAWUL:9510) Excellent Returns On Capital

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Ergo, when we looked at the ROCE trends at National Building and Marketing (TADAWUL:9510), we liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on National Building and Marketing is:

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

0.27 = ر.س87m ÷ (ر.س610m - ر.س288m) (Based on the trailing twelve months to December 2021).

Therefore, National Building and Marketing has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 8.0%.

See our latest analysis for National Building and Marketing

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

What Does the ROCE Trend For National Building and Marketing Tell Us?

National Building and Marketing deserves to be commended in regards to it's returns. The company has consistently earned 27% for the last five years, and the capital employed within the business has risen 259% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

On a side note, National Building and Marketing has done well to reduce current liabilities to 47% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line On National Building and Marketing's ROCE

In short, we'd argue National Building and Marketing has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last year. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know more about National Building and Marketing, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.