Returns At SABIC Agri-Nutrients (TADAWUL:2020) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over SABIC Agri-Nutrients' (TADAWUL:2020) trend of ROCE, we liked what we saw.

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. To calculate this metric for SABIC Agri-Nutrients, this is the formula:

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

0.15 = ر.س3.4b ÷ (ر.س25b - ر.س2.4b) (Based on the trailing twelve months to March 2024).

Therefore, SABIC Agri-Nutrients has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Chemicals industry.

Check out our latest analysis for SABIC Agri-Nutrients

In the above chart we have measured SABIC Agri-Nutrients' 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 SABIC Agri-Nutrients for free.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 143% in that time. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On SABIC Agri-Nutrients' ROCE

To sum it up, SABIC Agri-Nutrients has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 67% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

SABIC Agri-Nutrients does have some risks though, and we've spotted 2 warning signs for SABIC Agri-Nutrients that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com