Returns On Capital At Saudi Cement (TADAWUL:3030) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Saudi Cement (TADAWUL:3030), 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)

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 Cement is:

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

0.19 = ر.س462m ÷ (ر.س3.1b - ر.س722m) (Based on the trailing twelve months to December 2024).

Therefore, Saudi Cement has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 7.3% it's much better.

Check out our latest analysis for Saudi Cement

In the above chart we have measured Saudi Cement'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 Saudi Cement .

What The Trend Of ROCE Can Tell Us

Over the past five years, Saudi Cement's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Saudi Cement doesn't end up being a multi-bagger in a few years time. On top of that you'll notice that Saudi Cement has been paying out a large portion (92%) of earnings in the form of dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

What We Can Learn From Saudi Cement's ROCE

In summary, Saudi Cement isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 25% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

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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.