Aqaseem Factory for Chemicals and Plastics (TADAWUL:9539) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Aqaseem Factory for Chemicals and Plastics (TADAWUL:9539), it didn't seem to tick all of these boxes.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Aqaseem Factory for Chemicals and Plastics is:

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

0.14 = ر.س6.9m ÷ (ر.س82m - ر.س34m) (Based on the trailing twelve months to June 2022).

So, Aqaseem Factory for Chemicals and Plastics has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 5.6% it's much better.

See our latest analysis for Aqaseem Factory for Chemicals and Plastics

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Aqaseem Factory for Chemicals and Plastics' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Aqaseem Factory for Chemicals and Plastics' ROCE Trending?

There hasn't been much to report for Aqaseem Factory for Chemicals and Plastics' returns and its level of capital employed because both metrics have been steady for the past . Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Aqaseem Factory for Chemicals and Plastics to be a multi-bagger going forward.

On a side note, Aqaseem Factory for Chemicals and Plastics' current liabilities are still rather high at 41% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Aqaseem Factory for Chemicals and Plastics' ROCE

In summary, Aqaseem Factory for Chemicals and Plastics isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 43% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching Aqaseem Factory for Chemicals and Plastics, you might be interested to know about the 3 warning signs that our analysis has discovered.

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.

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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.