Stock Analysis

There's Been No Shortage Of Growth Recently For National Industrialization's (TADAWUL:2060) Returns On Capital

SASE:2060
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, National Industrialization (TADAWUL:2060) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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)

0.00066 = ر.س12m ÷ (ر.س24b - ر.س6.0b) (Based on the trailing twelve months to September 2023).

So, National Industrialization has an ROCE of 0.07%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.4%.

See our latest analysis for National Industrialization

roce
SASE:2060 Return on Capital Employed November 20th 2023

Above you can see how the current ROCE for National Industrialization compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering National Industrialization here for free.

What The Trend Of ROCE Can Tell Us

Like most people, we're pleased that National Industrialization is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 0.07% on their capital employed. In regards to capital employed, National Industrialization is using 28% 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.

In Conclusion...

From what we've seen above, National Industrialization has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing to note, we've identified 2 warning signs with National Industrialization and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.