Aljouf Mineral Water Bottling (TADAWUL:9532) Is Doing The Right Things To Multiply Its Share Price

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 on that note, Aljouf Mineral Water Bottling (TADAWUL:9532) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Aljouf Mineral Water Bottling is:

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

0.057 = ر.س6.7m ÷ (ر.س199m - ر.س80m) (Based on the trailing twelve months to December 2022).

So, Aljouf Mineral Water Bottling has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 13%.

See our latest analysis for Aljouf Mineral Water Bottling

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'd like to look at how Aljouf Mineral Water Bottling has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Aljouf Mineral Water Bottling Tell Us?

Aljouf Mineral Water Bottling is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last three years, the ROCE has climbed 156% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a separate but related note, it's important to know that Aljouf Mineral Water Bottling has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Aljouf Mineral Water Bottling's ROCE

In summary, we're delighted to see that Aljouf Mineral Water Bottling has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 46% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 3 warning signs for Aljouf Mineral Water Bottling (2 are a bit concerning) you should be aware of.

While Aljouf Mineral Water Bottling 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.