We Like These Underlying Return On Capital Trends At Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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)

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

0.061 = ر.س5.4b ÷ (ر.س100b - ر.س11b) (Based on the trailing twelve months to September 2021).

Thus, Saudi Arabian Mining Company (Ma'aden) has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 12%.

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, you can check out the forecasts from the analysts covering Saudi Arabian Mining Company (Ma'aden) here for free.

What Can We Tell From Saudi Arabian Mining Company (Ma'aden)'s ROCE Trend?

Saudi Arabian Mining Company (Ma'aden)'s ROCE growth is quite impressive. 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 361% 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. 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.

In Conclusion...

In summary, we're delighted to see that Saudi Arabian Mining Company (Ma'aden) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 129% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Saudi Arabian Mining Company (Ma'aden) does come with some risks, and we've found 1 warning sign that you should be aware of.

While Saudi Arabian Mining Company (Ma'aden) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.