Stock Analysis

National Industrialization (TADAWUL:2060) Shareholders Will Want The ROCE Trajectory To Continue

SASE:2060
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at National Industrialization (TADAWUL:2060) so let's look a bit deeper.

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. Analysts use this formula to calculate it for National Industrialization:

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

0.022 = ر.س430m ÷ (ر.س25b - ر.س5.4b) (Based on the trailing twelve months to December 2022).

Therefore, National Industrialization has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.2%.

See our latest analysis for National Industrialization

roce
SASE:2060 Return on Capital Employed May 3rd 2023

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, you can check out the forecasts from the analysts covering National Industrialization here for free.

What Can We Tell From National Industrialization's ROCE Trend?

While the ROCE is still rather low for National Industrialization, we're glad to see it heading in the right direction. The figures show that over the last five years, returns on capital have grown by 37%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, National Industrialization appears to been achieving more with less, since the business is using 32% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line On National Industrialization's ROCE

In summary, it's great to see that National Industrialization has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 34% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching National Industrialization, you might be interested to know about the 1 warning sign that our analysis has discovered.

While National Industrialization 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.

Valuation is complex, but we're helping make it simple.

Find out whether National Industrialization is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.