Alwasail Industrial (TADAWUL:9525) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Alwasail Industrial (TADAWUL:9525) looks decent, right now, so lets see what the trend of returns can tell us.

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 Alwasail Industrial:

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

0.11 = ر.س41m ÷ (ر.س521m - ر.س146m) (Based on the trailing twelve months to June 2023).

So, Alwasail Industrial has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Building industry average it falls behind.

Check out our latest analysis for Alwasail Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alwasail Industrial's ROCE against it's prior returns. If you'd like to look at how Alwasail Industrial has performed in the past in other metrics, you can view this free graph of Alwasail Industrial's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 25% more capital in the last three years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Alwasail Industrial's ROCE

To sum it up, Alwasail Industrial has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Like most companies, Alwasail Industrial does come with some risks, and we've found 1 warning sign that you should be aware of.

While Alwasail Industrial isn't earning the highest return, check out this free list of companies that are 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.