Under The Bonnet, Middle East Company for Manufacturing and Producing Paper's (TADAWUL:1202) Returns Look Impressive

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Middle East Company for Manufacturing and Producing Paper (TADAWUL:1202) we really liked what we saw.

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 Middle East Company for Manufacturing and Producing Paper is:

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

0.23 = ر.س375m ÷ (ر.س1.9b - ر.س294m) (Based on the trailing twelve months to June 2022).

So, Middle East Company for Manufacturing and Producing Paper has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 7.5% earned by companies in a similar industry.

Check out our latest analysis for Middle East Company for Manufacturing and Producing Paper

Historical performance is a great place to start when researching a stock so above you can see the gauge for Middle East Company for Manufacturing and Producing Paper's ROCE against it's prior returns. 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.

The Trend Of ROCE

Middle East Company for Manufacturing and Producing Paper is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The amount of capital employed has increased too, by 47%. So we're very much inspired by what we're seeing at Middle East Company for Manufacturing and Producing Paper thanks to its ability to profitably reinvest capital.

One more thing to note, Middle East Company for Manufacturing and Producing Paper has decreased current liabilities to 16% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Middle East Company for Manufacturing and Producing Paper has. Since the stock has returned a staggering 190% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Middle East Company for Manufacturing and Producing Paper and understanding it should be part of your investment process.

Middle East Company for Manufacturing and Producing Paper is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.