Investors Could Be Concerned With Advanced Petrochemical's (TADAWUL:2330) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Advanced Petrochemical (TADAWUL:2330), we don't think it's current trends fit the mold of a multi-bagger.

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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. Analysts use this formula to calculate it for Advanced Petrochemical:

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

0.017 = ر.س200m ÷ (ر.س13b - ر.س1.2b) (Based on the trailing twelve months to March 2025).

Thus, Advanced Petrochemical has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 3.8%.

View our latest analysis for Advanced Petrochemical

In the above chart we have measured Advanced 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 analyst report for Advanced Petrochemical .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Advanced Petrochemical doesn't inspire confidence. To be more specific, ROCE has fallen from 23% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Advanced Petrochemical's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Advanced Petrochemical is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 24% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

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

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.