Returns At Middle East Company for Manufacturing and Producing Paper (TADAWUL:1202) Are On The Way Up

By
Simply Wall St
Published
March 18, 2022
SASE:1202
Source: Shutterstock

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 on that note, Middle East Company for Manufacturing and Producing Paper (TADAWUL:1202) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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 Middle East Company for Manufacturing and Producing Paper is:

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

0.12 = ر.س155m ÷ (ر.س1.7b - ر.س405m) (Based on the trailing twelve months to September 2021).

Thus, Middle East Company for Manufacturing and Producing Paper has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Forestry industry.

See our latest analysis for Middle East Company for Manufacturing and Producing Paper

roce
SASE:1202 Return on Capital Employed March 18th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Middle East Company for Manufacturing and Producing Paper has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Middle East Company for Manufacturing and Producing Paper's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 242% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Middle East Company for Manufacturing and Producing Paper's ROCE

As discussed above, Middle East Company for Manufacturing and Producing Paper appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Middle East Company for Manufacturing and Producing Paper does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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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