Can Ayyan Investment (TADAWUL:2140) Continue To Grow Its Returns On Capital?

There are a few key trends to look for if we want to identify the next multi-bagger. 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. With that in mind, we've noticed some promising trends at Ayyan Investment (TADAWUL:2140) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Ayyan Investment:

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

0.0016 = ر.س1.7m ÷ (ر.س1.3b - ر.س233m) (Based on the trailing twelve months to December 2020).

Thus, Ayyan Investment has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 7.2%.

View our latest analysis for Ayyan Investment

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ayyan Investment's ROCE against it's prior returns. If you'd like to look at how Ayyan Investment has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Ayyan Investment's ROCE Trending?

Ayyan Investment has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.2% which is a sight for sore eyes. Not only that, but the company is utilizing 69% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Ayyan Investment's ROCE

In summary, it's great to see that Ayyan Investment has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 54% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Ayyan Investment we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Ayyan Investment isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you decide to trade Ayyan Investment, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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