Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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

0.15 = ر.س15b ÷ (ر.س112b - ر.س14b) (Based on the trailing twelve months to September 2022).

Thus, Saudi Arabian Mining Company (Ma'aden) has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 14%.

Check out 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.

The Trend Of ROCE

Saudi Arabian Mining Company (Ma'aden) has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 473% in that same time. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From 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 143% 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 3 warning signs for Saudi Arabian Mining Company (Ma'aden) (1 is potentially serious) 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.