We Like These Underlying Return On Capital Trends At Yanbu Cement (TADAWUL:3060)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So on that note, Yanbu Cement (TADAWUL:3060) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Yanbu Cement is:

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

0.085 = ر.س239m ÷ (ر.س3.3b - ر.س544m) (Based on the trailing twelve months to June 2023).

So, Yanbu Cement has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 6.2%.

View our latest analysis for Yanbu Cement

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'd like to see what analysts are forecasting going forward, you should check out our free report for Yanbu Cement.

How Are Returns Trending?

Yanbu Cement's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 89% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To bring it all together, Yanbu Cement has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 131% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Yanbu Cement does come with some risks, and we've found 1 warning sign that you should be aware of.

While Yanbu Cement 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.