There's Been No Shortage Of Growth Recently For Dr. Sulaiman Al Habib Medical Services Group's (TADAWUL:4013) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Dr. Sulaiman Al Habib Medical Services Group (TADAWUL:4013) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Dr. Sulaiman Al Habib Medical Services Group is:

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

0.17 = ر.س2.1b ÷ (ر.س16b - ر.س3.3b) (Based on the trailing twelve months to December 2023).

Therefore, Dr. Sulaiman Al Habib Medical Services Group has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 14% generated by the Healthcare industry.

See our latest analysis for Dr. Sulaiman Al Habib Medical Services Group

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, you can check out the forecasts from the analysts covering Dr. Sulaiman Al Habib Medical Services Group for free.

So How Is Dr. Sulaiman Al Habib Medical Services Group's ROCE Trending?

We like the trends that we're seeing from Dr. Sulaiman Al Habib Medical Services Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 102% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

In summary, it's great to see that Dr. Sulaiman Al Habib Medical Services Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Dr. Sulaiman Al Habib Medical Services Group that you might find interesting.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.