Saudi Industrial Investment Group (TADAWUL:2250) Is Doing The Right Things To Multiply Its Share Price

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Saudi Industrial Investment Group's (TADAWUL:2250) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Saudi Industrial Investment Group:

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

0.14 = ر.س2.3b ÷ (ر.س20b - ر.س3.2b) (Based on the trailing twelve months to June 2021).

Therefore, Saudi Industrial Investment Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 10% it's much better.

See our latest analysis for Saudi Industrial Investment Group

In the above chart we have measured Saudi Industrial Investment Group'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 report for Saudi Industrial Investment Group.

What Can We Tell From Saudi Industrial Investment Group's ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at Saudi Industrial Investment Group. The figures show that over the last five years, returns on capital have grown by 105%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 32% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Saudi Industrial Investment Group may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In summary, it's great to see that Saudi Industrial Investment Group has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a staggering 289% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Saudi Industrial Investment Group can keep these trends up, it could have a bright future ahead.

Saudi Industrial Investment Group does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.

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.

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