Saudi Kayan Petrochemical (TADAWUL:2350) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Saudi Kayan Petrochemical's (TADAWUL:2350) returns on capital, so let's have a look.

What is 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 Saudi Kayan Petrochemical is:

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

0.097 = ر.س2.8b ÷ (ر.س33b - ر.س3.9b) (Based on the trailing twelve months to December 2021).

Therefore, Saudi Kayan Petrochemical has an ROCE of 9.7%. Even though it's in line with the industry average of 9.7%, it's still a low return by itself.

View our latest analysis for Saudi Kayan Petrochemical

In the above chart we have measured Saudi Kayan 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.

So How Is Saudi Kayan Petrochemical's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Saudi Kayan Petrochemical. The figures show that over the last five years, returns on capital have grown by 242%. The company is now earning ر.س0.1 per dollar of capital employed. In regards to capital employed, Saudi Kayan Petrochemical appears to been achieving more with less, since the business is using 23% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Our Take On Saudi Kayan Petrochemical's ROCE

From what we've seen above, Saudi Kayan Petrochemical has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 124% 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 Kayan Petrochemical can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Saudi Kayan Petrochemical and understanding these should be part of your investment process.

While Saudi Kayan 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.