Returns At Basic Chemical Industries (TADAWUL:1210) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Basic Chemical Industries (TADAWUL:1210) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for Basic Chemical Industries:

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

0.10 = ر.س70m ÷ (ر.س809m - ر.س124m) (Based on the trailing twelve months to September 2020).

Therefore, Basic Chemical Industries has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 4.8% it's much better.

See our latest analysis for Basic Chemical Industries

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 Basic Chemical Industries, check out these free graphs here.

So How Is Basic Chemical Industries' ROCE Trending?

The trends we've noticed at Basic Chemical Industries are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 10%. The amount of capital employed has increased too, by 21%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that Basic Chemical Industries is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 127% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

If you'd like to know about the risks facing Basic Chemical Industries, we've discovered 1 warning sign that you should be aware of.

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