Investors Will Want Wafrah for Industry and Development's (TADAWUL:2100) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Wafrah for Industry and Development (TADAWUL:2100) 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. The formula for this calculation on Wafrah for Industry and Development is:

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

0.039 = ر.س9.1m ÷ (ر.س313m - ر.س84m) (Based on the trailing twelve months to September 2022).

So, Wafrah for Industry and Development has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Food industry average of 7.1%.

See our latest analysis for Wafrah for Industry and Development

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wafrah for Industry and Development's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Wafrah for Industry and Development, check out these free graphs here.

So How Is Wafrah for Industry and Development's ROCE Trending?

Shareholders will be relieved that Wafrah for Industry and Development has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 3.9% on its capital. While returns have increased, the amount of capital employed by Wafrah for Industry and Development has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 27% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

In Conclusion...

To sum it up, Wafrah for Industry and Development is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 47% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 2 warning signs for Wafrah for Industry and Development that we think you should be aware of.

While Wafrah for Industry and Development 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.