Returns On Capital Are Showing Encouraging Signs At Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Saudi Arabian Mining Company (Ma'aden) is:

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

0.14 = ر.س14b ÷ (ر.س112b - ر.س13b) (Based on the trailing twelve months to December 2022).

Thus, Saudi Arabian Mining Company (Ma'aden) has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.

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

Above you can see how the current ROCE for Saudi Arabian Mining Company (Ma'aden) compares to its prior returns on capital, but there's only so much you can tell from the past. 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 Can We Tell From Saudi Arabian Mining Company (Ma'aden)'s ROCE Trend?

Saudi Arabian Mining Company (Ma'aden) is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 311% over the last five years. 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 Bottom Line

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 130% 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.

One more thing: We've identified 2 warning signs with Saudi Arabian Mining Company (Ma'aden) (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.