Stock Analysis

Returns At Yanbu Cement (TADAWUL:3060) Are On The Way Up

SASE:3060
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Yanbu Cement's (TADAWUL:3060) 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. Analysts use this formula to calculate it for Yanbu Cement:

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

0.083 = ر.س249m ÷ (ر.س3.4b - ر.س348m) (Based on the trailing twelve months to March 2023).

Thus, Yanbu Cement has an ROCE of 8.3%. On its own that's a low return, but compared to the average of 6.5% generated by the Basic Materials industry, it's much better.

Check out our latest analysis for Yanbu Cement

roce
SASE:3060 Return on Capital Employed July 6th 2023

In the above chart we have measured Yanbu 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 report on analyst forecasts for the company.

So How Is Yanbu Cement's ROCE Trending?

Yanbu Cement is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 38% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

To sum it up, Yanbu Cement is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 110% 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 Yanbu Cement can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Yanbu Cement and understanding this should be part of your investment process.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Yanbu Cement is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.