Returns On Capital Are Showing Encouraging Signs At Middle East Company for Manufacturing and Producing Paper (TADAWUL:1202)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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 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 Middle East Company for Manufacturing and Producing Paper:

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

0.076 = ر.س91m ÷ (ر.س1.6b - ر.س426m) (Based on the trailing twelve months to June 2021).

So, Middle East Company for Manufacturing and Producing Paper has an ROCE of 7.6%. Even though it's in line with the industry average of 7.6%, it's still a low return by itself.

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

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 want to delve into the historical earnings, revenue and cash flow of Middle East Company for Manufacturing and Producing Paper, check out these free graphs here.

How Are Returns Trending?

Middle East Company for Manufacturing and Producing Paper's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 75% 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. 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 Middle East Company for Manufacturing and Producing Paper's ROCE

To sum it up, Middle East Company for Manufacturing and Producing Paper is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 166% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Middle East Company for Manufacturing and Producing Paper, we've spotted 3 warning signs, and 1 of them is potentially serious.

While Middle East Company for Manufacturing and Producing Paper 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.
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