Investors Shouldn't Overlook Balady Poultry's (TADAWUL:9559) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 looked at the ROCE trend of Balady Poultry (TADAWUL:9559) we really liked what we saw.

Understanding 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 Balady Poultry is:

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

0.38 = ر.س75m ÷ (ر.س225m - ر.س26m) (Based on the trailing twelve months to September 2023).

Therefore, Balady Poultry has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Food industry average of 10%.

See our latest analysis for Balady Poultry

Above you can see how the current ROCE for Balady Poultry 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 Balady Poultry for free.

What Does the ROCE Trend For Balady Poultry Tell Us?

Investors would be pleased with what's happening at Balady Poultry. The numbers show that in the last two years, the returns generated on capital employed have grown considerably to 38%. Basically the business is earning more per dollar of capital invested and in addition to that, 140% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Balady Poultry's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Balady Poultry has. And a remarkable 153% total return over the last year tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Balady Poultry does have some risks, we noticed 3 warning signs (and 2 which are significant) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com