Saudi Aramco Base Oil Company - Luberef (TADAWUL:2223) Is Very Good At Capital Allocation

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Saudi Aramco Base Oil Company - Luberef (TADAWUL:2223) looks great, so lets see what the trend can tell us.

Understanding 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. 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)

0.22 = ر.س1.6b ÷ (ر.س8.9b - ر.س1.7b) (Based on the trailing twelve months to December 2023).

Thus, Saudi Aramco Base Oil Company - Luberef has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 7.2%.

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're interested, you can view the analysts predictions in our free analyst report for Saudi Aramco Base Oil Company - Luberef .

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

We like the trends that we're seeing from Saudi Aramco Base Oil Company - Luberef. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 22%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

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

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Saudi Aramco Base Oil Company - Luberef has. And with a respectable 46% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Saudi Aramco Base Oil Company - Luberef can keep these trends up, it could have a bright future ahead.

If you want to continue researching Saudi Aramco Base Oil Company - Luberef, you might be interested to know about the 1 warning sign that our analysis has discovered.

Saudi Aramco Base Oil Company - Luberef is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.