Saudi Research and Media Group (TADAWUL:4210) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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 when we looked at Saudi Research and Media Group (TADAWUL:4210) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Saudi Research and Media Group, this is the formula:

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

0.18 = ر.س754m ÷ (ر.س6.0b - ر.س1.7b) (Based on the trailing twelve months to September 2023).

So, Saudi Research and Media Group has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Media industry.

Check out our latest analysis for Saudi Research and Media Group

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

So How Is Saudi Research and Media Group's ROCE Trending?

Investors would be pleased with what's happening at Saudi Research and Media Group. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 32%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that Saudi Research and Media Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 77% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Saudi Research and Media Group that you might find interesting.

While Saudi Research and Media Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.