Returns On Capital At Alwasail Industrial (TADAWUL:9525) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So, when we ran our eye over Alwasail Industrial's (TADAWUL:9525) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Alwasail Industrial, this is the formula:

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.

See 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 want to delve into the historical earnings, revenue and cash flow of Alwasail Industrial, check out these free graphs here.

So How Is Alwasail Industrial's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past three years, ROCE has remained relatively flat at around 11% and the business has deployed 25% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Alwasail Industrial has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

The main thing to remember is that Alwasail Industrial has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 6.0% over the last year, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

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.