Returns Are Gaining Momentum At Nama Chemicals (TADAWUL:2210)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Nama Chemicals (TADAWUL:2210) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Nama Chemicals is:

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

0.0066 = ر.س5.5m ÷ (ر.س1.1b - ر.س303m) (Based on the trailing twelve months to September 2021).

So, Nama Chemicals has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 9.2%.

View our latest analysis for Nama Chemicals

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nama Chemicals' ROCE against it's prior returns. If you'd like to look at how Nama Chemicals has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Nama Chemicals' ROCE Trending?

It's great to see that Nama Chemicals has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 50% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Bottom Line On Nama Chemicals' ROCE

From what we've seen above, Nama Chemicals has managed to increase it's returns on capital all the while reducing it's capital base. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Nama Chemicals does come with some risks, and we've found 1 warning sign that you should be aware of.

While Nama Chemicals 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.

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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.