Why You Should Care About Rawasi Albina Investment's (TADAWUL:9547) Strong Returns On Capital

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Rawasi Albina Investment (TADAWUL:9547), we liked what we saw.

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

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 Rawasi Albina Investment:

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

0.23 = ر.س35m ÷ (ر.س210m - ر.س60m) (Based on the trailing twelve months to December 2023).

Therefore, Rawasi Albina Investment has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Construction industry average of 8.5%.

View our latest analysis for Rawasi Albina Investment

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

So How Is Rawasi Albina Investment's ROCE Trending?

In terms of Rawasi Albina Investment's history of ROCE, it's quite impressive. The company has employed 80% more capital in the last three years, and the returns on that capital have remained stable at 23%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

Rawasi Albina Investment has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last year the stock has declined 28%, so the decline might provide an opening. 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 about the risks facing Rawasi Albina Investment, we've discovered 1 warning sign that you should be aware of.

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.