Returns Are Gaining Momentum At Saudi Aramco Base Oil Company - Luberef (TADAWUL:2223)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Saudi Aramco Base Oil Company - Luberef (TADAWUL:2223) and its trend of ROCE, we really liked what we saw.

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 Saudi Aramco Base Oil Company - Luberef:

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

0.19 = ر.س1.1b ÷ (ر.س8.1b - ر.س2.5b) (Based on the trailing twelve months to September 2024).

Therefore, Saudi Aramco Base Oil Company - Luberef has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 4.3% it's much better.

Check out our latest analysis for Saudi Aramco Base Oil Company - Luberef

In the above chart we have measured Saudi Aramco Base Oil Company - Luberef'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 analyst report for Saudi Aramco Base Oil Company - Luberef .

So How Is Saudi Aramco Base Oil Company - Luberef's ROCE Trending?

Saudi Aramco Base Oil Company - Luberef has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 20,923% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

In summary, we're delighted to see that Saudi Aramco Base Oil Company - Luberef has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Saudi Aramco Base Oil Company - Luberef does come with some risks, and we've found 2 warning signs that you should be aware of.

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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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.