Saudia Dairy & Foodstuff (TADAWUL:2270) Hasn't Managed To Accelerate Its Returns

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Saudia Dairy & Foodstuff's (TADAWUL:2270) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Saudia Dairy & Foodstuff, this is the formula:

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

0.19 = ر.س338m ÷ (ر.س2.4b - ر.س620m) (Based on the trailing twelve months to September 2022).

Therefore, Saudia Dairy & Foodstuff has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 8.1% 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, you can check out the forecasts from the analysts covering Saudia Dairy & Foodstuff here for free.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 28% more capital into its operations. 19% is a pretty standard return, and it provides some comfort knowing that Saudia Dairy & Foodstuff has consistently earned this amount. 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

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 done incredibly well with a 138% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 1 warning sign for Saudia Dairy & Foodstuff that we think you should be aware of.

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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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.