Returns At National Environmental Recycling (TADAWUL:9540) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, National Environmental Recycling (TADAWUL:9540) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on National Environmental Recycling is:

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

0.13 = ر.س22m ÷ (ر.س216m - ر.س46m) (Based on the trailing twelve months to December 2022).

Thus, National Environmental Recycling has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 7.5% it's much better.

See our latest analysis for National Environmental Recycling

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

So How Is National Environmental Recycling's ROCE Trending?

The trends we've noticed at National Environmental Recycling are quite reassuring. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 656%. So we're very much inspired by what we're seeing at National Environmental Recycling thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what National Environmental Recycling has. And since the stock has fallen 12% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about National Environmental Recycling, we've spotted 3 warning signs, and 2 of them are potentially serious.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.