If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at National Industrialization (TADAWUL:2060) so let's look a bit deeper.
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. Analysts use this formula to calculate it for National Industrialization:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.03 = ر.س599m ÷ (ر.س26b - ر.س5.3b) (Based on the trailing twelve months to June 2022).
Thus, National Industrialization has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 9.4%.
In the above chart we have measured National Industrialization's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for National Industrialization.
What The Trend Of ROCE Can Tell Us
It's great to see that National Industrialization has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 3.0% which is no doubt a relief for some early shareholders. In regards to capital employed, National Industrialization is using 27% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.
Our Take On National Industrialization's ROCE
In a nutshell, we're pleased to see that National Industrialization has been able to generate higher returns from less capital. Given the stock has declined 11% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you'd like to know about the risks facing National Industrialization, we've discovered 1 warning sign that you should be aware of.
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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.
National Industrialization Company operates in the petrochemicals, chemicals, plastics, engineering, and metals sectors worldwide.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
|Analysis Area||Score (0-6)|
Read more about these checks in the individual report sections or in our analysis model.
Undervalued with adequate balance sheet.