Investors Met With Slowing Returns on Capital At Alwasail Industrial (TADAWUL:9525)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Alwasail Industrial's (TADAWUL:9525) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its 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).

Thus, 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

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're interested in investigating Alwasail Industrial's past further, check out this free graph covering Alwasail Industrial's past earnings, revenue and cash flow.

What Can We Tell From Alwasail Industrial's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last three years, and the capital employed within the business has risen 25% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Alwasail Industrial has consistently earned this amount. 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.

The Bottom Line 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 while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, Alwasail Industrial does come with some risks, and we've found 2 warning signs that you should be aware of.

While Alwasail Industrial may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.

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