Arabian Plastic Industrial (TADAWUL:9548) Shareholders Will Want The ROCE Trajectory To Continue

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Arabian Plastic Industrial (TADAWUL:9548) so let's look a bit deeper.

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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. To calculate this metric for Arabian Plastic Industrial, this is the formula:

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

0.19 = ر.س24m ÷ (ر.س237m - ر.س111m) (Based on the trailing twelve months to June 2025).

Thus, Arabian Plastic Industrial has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Packaging industry.

Check out our latest analysis for Arabian Plastic Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Arabian Plastic Industrial's ROCE against it's prior returns. If you'd like to look at how Arabian Plastic Industrial has performed in the past in other metrics, you can view this free graph of Arabian Plastic Industrial's past earnings, revenue and cash flow.

So How Is Arabian Plastic Industrial's ROCE Trending?

We like the trends that we're seeing from Arabian Plastic Industrial. The data shows that returns on capital have increased substantially over the last four years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 47% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line

To sum it up, Arabian Plastic Industrial has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Arabian Plastic Industrial (of which 1 can't be ignored!) that you should know about.

While Arabian Plastic Industrial 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.