Investors Will Want Al Hammadi Holding's (TADAWUL:4007) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Al Hammadi Holding's (TADAWUL:4007) returns on capital, so let's have a look.

What Is 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. The formula for this calculation on Al Hammadi Holding is:

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

0.13 = ر.س302m ÷ (ر.س2.6b - ر.س226m) (Based on the trailing twelve months to September 2024).

Therefore, Al Hammadi Holding has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Healthcare industry average of 14%.

View our latest analysis for Al Hammadi Holding

In the above chart we have measured Al Hammadi Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Al Hammadi Holding for free.

The Trend Of ROCE

Al Hammadi Holding's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 108% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, Al Hammadi Holding appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 183% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Al Hammadi Holding can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Al Hammadi Holding, we've discovered 1 warning sign that you should be aware of.

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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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.