Returns On Capital At Sahara International Petrochemical (TADAWUL:2310) Have Stalled

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Sahara International Petrochemical (TADAWUL:2310) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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

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

0.09 = ر.س1.8b ÷ (ر.س23b - ر.س2.6b) (Based on the trailing twelve months to September 2023).

Therefore, Sahara International Petrochemical has an ROCE of 9.0%. On its own that's a low return, but compared to the average of 5.7% generated by the Chemicals industry, it's much better.

View our latest analysis for Sahara International Petrochemical

Above you can see how the current ROCE for Sahara International Petrochemical 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 Sahara International Petrochemical for free.

So How Is Sahara International Petrochemical's ROCE Trending?

There are better returns on capital out there than what we're seeing at Sahara International Petrochemical. The company has employed 42% more capital in the last five years, and the returns on that capital have remained stable at 9.0%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

As we've seen above, Sahara International Petrochemical's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 97% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 2 warning signs for Sahara International Petrochemical that we think you should be aware of.

While Sahara International Petrochemical isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.