Investors Shouldn't Overlook East Pipes Integrated Company for Industry's (TADAWUL:1321) Impressive 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? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at East Pipes Integrated Company for Industry's (TADAWUL:1321) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for East Pipes Integrated Company for Industry, this is the formula:

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

0.20 = ر.س133m ÷ (ر.س987m - ر.س340m) (Based on the trailing twelve months to March 2023).

Therefore, East Pipes Integrated Company for Industry has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 11%.

Check out our latest analysis for East Pipes Integrated Company for Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for East Pipes Integrated Company for Industry's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of East Pipes Integrated Company for Industry, check out these free graphs here.

So How Is East Pipes Integrated Company for Industry's ROCE Trending?

The fact that East Pipes Integrated Company for Industry is now generating some pre-tax profits from its prior investments is very encouraging. About four years ago the company was generating losses but things have turned around because it's now earning 20% on its capital. In addition to that, East Pipes Integrated Company for Industry is employing 179% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, East Pipes Integrated Company for Industry has decreased current liabilities to 34% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On East Pipes Integrated Company for Industry's ROCE

In summary, it's great to see that East Pipes Integrated Company for Industry has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 66% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if East Pipes Integrated Company for Industry can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for East Pipes Integrated Company for Industry (of which 1 is significant!) that you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.