If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Mouwasat Medical Services (TADAWUL:4002) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Mouwasat Medical Services is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = ر.س613m ÷ (ر.س3.9b - ر.س680m) (Based on the trailing twelve months to March 2021).
Therefore, Mouwasat Medical Services has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Healthcare industry.
Above you can see how the current ROCE for Mouwasat Medical Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
Mouwasat Medical Services is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 19%. 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 91%. So we're very much inspired by what we're seeing at Mouwasat Medical Services thanks to its ability to profitably reinvest capital.
The Bottom Line
All in all, it's terrific to see that Mouwasat Medical Services is reaping the rewards from prior investments and is growing its capital base. And a remarkable 228% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing to note, we've identified 1 warning sign with Mouwasat Medical Services and understanding this should be part of your investment process.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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