Returns On Capital Are Showing Encouraging Signs At Sahara International Petrochemical (TADAWUL:2310)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 when we looked at Sahara International Petrochemical (TADAWUL:2310) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Sahara International Petrochemical is:

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

0.12 = ر.س2.4b ÷ (ر.س23b - ر.س3.3b) (Based on the trailing twelve months to June 2023).

Therefore, Sahara International Petrochemical has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Chemicals industry.

See our latest analysis for Sahara International Petrochemical

In the above chart we have measured Sahara International Petrochemical'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 report on analyst forecasts for the company.

What Can We Tell From Sahara International Petrochemical's ROCE Trend?

We like the trends that we're seeing from Sahara International Petrochemical. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 40%. So we're very much inspired by what we're seeing at Sahara International Petrochemical thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Sahara International Petrochemical is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 125% 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 Sahara International Petrochemical can keep these trends up, it could have a bright future ahead.

Sahara International Petrochemical does have some risks though, and we've spotted 2 warning signs for Sahara International Petrochemical that you might be interested in.

While Sahara International Petrochemical 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.

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

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.