We Like These Underlying Return On Capital Trends At Al Hammadi Holding (TADAWUL:4007)

There are a few key trends to look for if we want to identify the next 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. 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 Holding (TADAWUL:4007) and its trend of ROCE, 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. To calculate this metric for Al Hammadi Holding, this is the formula:

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

0.13 = ر.س307m ÷ (ر.س2.6b - ر.س209m) (Based on the trailing twelve months to June 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%.

Check out 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.

What Can We Tell From Al Hammadi Holding's ROCE Trend?

Al Hammadi Holding has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 115% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Al Hammadi Holding's ROCE

In summary, we're delighted to see that Al Hammadi Holding has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 195% 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.

One more thing to note, we've identified 1 warning sign with Al Hammadi Holding and understanding it should be part of your investment process.

While Al Hammadi Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.