Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Saudi Arabian Mining Company (Ma'aden):

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

0.12 = ر.س11b ÷ (ر.س111b - ر.س14b) (Based on the trailing twelve months to March 2023).

Therefore, Saudi Arabian Mining Company (Ma'aden) has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Metals and Mining industry.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Saudi Arabian Mining Company (Ma'aden)'s ROCE Trending?

Saudi Arabian Mining Company (Ma'aden) has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 201% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Saudi Arabian Mining Company (Ma'aden)'s ROCE

To sum it up, Saudi Arabian Mining Company (Ma'aden) is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 121% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Saudi Arabian Mining Company (Ma'aden) can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Saudi Arabian Mining Company (Ma'aden) (1 shouldn't be ignored) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.