Slowing Rates Of Return At Aqaseem Factory for Chemicals and Plastics (TADAWUL:9539) Leave Little Room For Excitement

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Aqaseem Factory for Chemicals and Plastics' (TADAWUL:9539) trend of ROCE, we liked what we saw.

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)

0.19 = ر.س11m ÷ (ر.س118m - ر.س57m) (Based on the trailing twelve months to June 2023).

Therefore, Aqaseem Factory for Chemicals and Plastics has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 5.6% it's much better.

Check out our latest analysis for Aqaseem Factory for Chemicals and Plastics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aqaseem Factory for Chemicals and Plastics' ROCE against it's prior returns. 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.

What Can We Tell From Aqaseem Factory for Chemicals and Plastics' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 19% for the last two years, and the capital employed within the business has risen 46% in that time. 19% is a pretty standard return, and it provides some comfort knowing that Aqaseem Factory for Chemicals and Plastics has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last two years. This is intriguing because if current liabilities hadn't increased to 48% of total assets, this reported ROCE would probably be less than19% because total capital employed would be higher.The 19% ROCE could be even lower if current liabilities weren't 48% of total assets, because the the formula would show a larger base of total capital employed. Additionally, this high level of current liabilities isn't ideal because it means the company's suppliers (or short-term creditors) are effectively funding a large portion of the business.

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

The main thing to remember is that Aqaseem Factory for Chemicals and Plastics has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Aqaseem Factory for Chemicals and Plastics (of which 2 can't be ignored!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.