We Like These Underlying Return On Capital Trends At Wafrah for Industry and Development (TADAWUL:2100)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So when we looked at Wafrah for Industry and Development (TADAWUL:2100) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Wafrah for Industry and Development, this is the formula:

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

0.039 = ر.س9.9m ÷ (ر.س340m - ر.س82m) (Based on the trailing twelve months to March 2024).

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 10%.

Check out our latest analysis for Wafrah for Industry and Development

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Wafrah for Industry and Development.

What Does the ROCE Trend For Wafrah for Industry and Development Tell Us?

We're delighted to see that Wafrah for Industry and Development is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Wafrah for Industry and Development is utilizing 110% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Wafrah for Industry and Development's ROCE

In summary, it's great to see that Wafrah for Industry and Development has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 228% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Wafrah for Industry and Development and understanding this should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com