Al Hammadi Company For Development and Investment's (TADAWUL:4007) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Al Hammadi Company For Development and Investment (TADAWUL:4007) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Al Hammadi Company For Development and Investment, this is the formula:

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

0.087 = ر.س179m ÷ (ر.س2.3b - ر.س278m) (Based on the trailing twelve months to March 2022).

Therefore, Al Hammadi Company For Development and Investment has an ROCE of 8.7%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 11%.

See our latest analysis for Al Hammadi Company For Development and Investment

In the above chart we have measured Al Hammadi Company For Development and Investment's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Al Hammadi Company For Development and Investment.

The Trend Of ROCE

Al Hammadi Company For Development and Investment's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 60% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Al Hammadi Company For Development and Investment's ROCE

To sum it up, Al Hammadi Company For Development and Investment is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 27% to shareholders. So with that in mind, we think the stock deserves further research.

While Al Hammadi Company For Development and Investment looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 4007 is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.