Saudi Aramco Base Oil Company - Luberef (TADAWUL:2223) Is Investing Its Capital With Increasing Efficiency

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at the ROCE trend of Saudi Aramco Base Oil Company - Luberef (TADAWUL:2223) we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Saudi Aramco Base Oil Company - Luberef, this is the formula:

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

0.24 = ر.س1.4b ÷ (ر.س8.3b - ر.س2.6b) (Based on the trailing twelve months to March 2024).

Thus, Saudi Aramco Base Oil Company - Luberef has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 5.1%.

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

Above you can see how the current ROCE for Saudi Aramco Base Oil Company - Luberef 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 Saudi Aramco Base Oil Company - Luberef for free.

What Can We Tell From Saudi Aramco Base Oil Company - Luberef's ROCE Trend?

Saudi Aramco Base Oil Company - Luberef'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 1,104% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Saudi Aramco Base Oil Company - Luberef's ROCE

To sum it up, Saudi Aramco Base Oil Company - Luberef is collecting higher returns from the same amount of capital, and that's impressive. Since the total return from the stock has been almost flat over the last year, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Saudi Aramco Base Oil Company - Luberef we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com