Saudi Cement's (TADAWUL:3030) Returns Have Hit A Wall

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Saudi Cement (TADAWUL:3030) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 Saudi Cement:

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

0.17 = ر.س386m ÷ (ر.س3.2b - ر.س957m) (Based on the trailing twelve months to September 2024).

Thus, Saudi Cement has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 5.7% it's much better.

See our latest analysis for Saudi Cement

Above you can see how the current ROCE for Saudi Cement compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Saudi Cement .

What Does the ROCE Trend For Saudi Cement Tell Us?

Things have been pretty stable at Saudi Cement, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're 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 (109%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line On Saudi Cement's ROCE

In a nutshell, Saudi Cement has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 21% in the last five years. Therefore based on the analysis done in this article, we don't think Saudi Cement has the makings of a multi-bagger.

Saudi Cement does have some risks though, and we've spotted 1 warning sign for Saudi Cement that you might be interested in.

While Saudi Cement 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.

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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.