Is There More Growth In Store For National Gypsum's (TADAWUL:2090) Returns On Capital?

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in National Gypsum's (TADAWUL:2090) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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

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

0.093 = ر.س44m ÷ (ر.س486m - ر.س17m) (Based on the trailing twelve months to September 2020).

Thus, National Gypsum has an ROCE of 9.3%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

View our latest analysis for National Gypsum

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating National Gypsum's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

National Gypsum's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 201% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On National Gypsum's ROCE

In summary, we're delighted to see that National Gypsum has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While National Gypsum looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 2090 is currently trading for a fair price.

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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