The Trend Of High Returns At Saudia Dairy & Foodstuff (TADAWUL:2270) Has Us Very Interested

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Saudia Dairy & Foodstuff's (TADAWUL:2270) look very promising so lets take a look.

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. The formula for this calculation on Saudia Dairy & Foodstuff is:

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

0.21 = ر.س417m ÷ (ر.س2.6b - ر.س564m) (Based on the trailing twelve months to September 2023).

Therefore, Saudia Dairy & Foodstuff has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Food industry average of 9.8%.

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 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 trends we've noticed at Saudia Dairy & Foodstuff are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 34%. So we're very much inspired by what we're seeing at Saudia Dairy & Foodstuff thanks to its ability to profitably reinvest capital.

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

To sum it up, Saudia Dairy & Foodstuff has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Saudia Dairy & Foodstuff looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 2270 is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.