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

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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, the ROCE of Saudia Dairy & Foodstuff (TADAWUL:2270) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

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 Saudia Dairy & Foodstuff is:

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

0.17 = ر.س308m ÷ (ر.س2.2b - ر.س433m) (Based on the trailing twelve months to December 2020).

So, Saudia Dairy & Foodstuff has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 5.3% generated by the Food industry.

Check out 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 to see what analysts are forecasting going forward, you should check out our free report for Saudia Dairy & Foodstuff.

What Does the ROCE Trend For Saudia Dairy & Foodstuff Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 63% more capital into its operations. 17% is a pretty standard return, and it provides some comfort knowing that Saudia Dairy & Foodstuff has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Saudia Dairy & Foodstuff's ROCE

The main thing to remember is that Saudia Dairy & Foodstuff has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 52% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

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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