Saudi Arabia Refineries (TADAWUL:2030) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Saudi Arabia Refineries (TADAWUL:2030) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for Saudi Arabia Refineries:

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

0.037 = ر.س20m ÷ (ر.س542m - ر.س3.6m) (Based on the trailing twelve months to June 2022).

So, Saudi Arabia Refineries has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 8.4%.

Check out our latest analysis for Saudi Arabia Refineries

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

What Does the ROCE Trend For Saudi Arabia Refineries Tell Us?

The fact that Saudi Arabia Refineries is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 3.7% which is a sight for sore eyes. Not only that, but the company is utilizing 43% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Saudi Arabia Refineries' ROCE

In summary, it's great to see that Saudi Arabia Refineries has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.