If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Dr. Sulaiman Al Habib Medical Services Group (TADAWUL:4013), it didn't seem to tick all of these boxes.
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. Analysts use this formula to calculate it for Dr. Sulaiman Al Habib Medical Services Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = ر.س1.3b ÷ (ر.س10b - ر.س1.8b) (Based on the trailing twelve months to June 2021).
Therefore, Dr. Sulaiman Al Habib Medical Services Group has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 7.8% generated by the Healthcare industry.
In the above chart we have measured Dr. Sulaiman Al Habib Medical Services Group'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 Dr. Sulaiman Al Habib Medical Services Group.
So How Is Dr. Sulaiman Al Habib Medical Services Group's ROCE Trending?
On the surface, the trend of ROCE at Dr. Sulaiman Al Habib Medical Services Group doesn't inspire confidence. Over the last five years, returns on capital have decreased to 16% from 23% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line On Dr. Sulaiman Al Habib Medical Services Group's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Dr. Sulaiman Al Habib Medical Services Group. And long term investors must be optimistic going forward because the stock has returned a huge 104% to shareholders in the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
If you want to continue researching Dr. Sulaiman Al Habib Medical Services Group, you might be interested to know about the 1 warning sign that our analysis has discovered.
While Dr. Sulaiman Al Habib Medical Services Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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