Returns Are Gaining Momentum At Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Saudi Arabian Mining Company (Ma'aden), this is the formula:

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

0.14 = ر.س14b ÷ (ر.س109b - ر.س13b) (Based on the trailing twelve months to June 2022).

Thus, Saudi Arabian Mining Company (Ma'aden) has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 13%.

View our latest analysis for Saudi Arabian Mining Company (Ma'aden)

In the above chart we have measured Saudi Arabian Mining Company (Ma'aden)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Saudi Arabian Mining Company (Ma'aden).

What The Trend Of ROCE Can Tell Us

Saudi Arabian Mining Company (Ma'aden) is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 517% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To bring it all together, Saudi Arabian Mining Company (Ma'aden) has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 148% 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Saudi Arabian Mining Company (Ma'aden) (of which 2 shouldn't be ignored!) that you should know about.

While Saudi Arabian Mining Company (Ma'aden) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.