Our Take On The Returns On Capital At Saudia Dairy & Foodstuff (TADAWUL:2270)

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Saudia Dairy & Foodstuff's (TADAWUL:2270) trend of ROCE, we liked what we saw.

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. To calculate this metric for Saudia Dairy & Foodstuff, this is the formula:

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

0.18 = ر.س313m ÷ (ر.س2.2b - ر.س510m) (Based on the trailing twelve months to September 2020).

Therefore, Saudia Dairy & Foodstuff has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 6.3% generated by the Food industry.

View our latest analysis for Saudia Dairy & Foodstuff

Above you can see how the current ROCE for Saudia Dairy & Foodstuff compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Saudia Dairy & Foodstuff here for free.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 67% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Saudia Dairy & Foodstuff's ROCE

In the end, Saudia Dairy & Foodstuff has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Saudia Dairy & Foodstuff that you might find interesting.

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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