Will The ROCE Trend At Basic Chemical Industries (TADAWUL:1210) Continue?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Basic Chemical Industries (TADAWUL:1210) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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).

So, Basic Chemical Industries has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 7.5% it's much better.

Check out our latest analysis for Basic Chemical Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Basic Chemical Industries' ROCE against it's prior returns. If you're interested in investigating Basic Chemical Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Basic Chemical Industries' ROCE Trend?

Basic Chemical Industries is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 21%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

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. And with a respectable 93% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Basic Chemical Industries does have some risks though, and we've spotted 1 warning sign for Basic Chemical Industries that you might be interested in.

While Basic Chemical Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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