Saudi Arabia Refineries (TADAWUL:2030) Shareholders Will Want The ROCE Trajectory To Continue

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 looked at Saudi Arabia Refineries (TADAWUL:2030) and its trend of ROCE, we really 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. 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)

0.024 = ر.س15m ÷ (ر.س630m - ر.س8.3m) (Based on the trailing twelve months to June 2021).

Thus, Saudi Arabia Refineries has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 3.9%.

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?

We're delighted to see that Saudi Arabia Refineries is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.4% which is a sight for sore eyes. Not only that, but the company is utilizing 120% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Overall, Saudi Arabia Refineries gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 560% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Saudi Arabia Refineries does come with some risks, and we've found 1 warning sign that you should be aware of.

While Saudi Arabia Refineries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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