We Like These Underlying Return On Capital Trends At Saudi Research and Media Group (TADAWUL:4210)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at Saudi Research and Media Group (TADAWUL:4210) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Saudi Research and Media Group is:

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

0.18 = ر.س729m ÷ (ر.س6.7b - ر.س2.7b) (Based on the trailing twelve months to September 2022).

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 8.3% generated by the Media industry.

View 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're interested in investigating Saudi Research and Media Group's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We like the trends that we're seeing from Saudi Research and Media Group. Over the last five years, returns on capital employed have risen substantially to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 104% more capital is being employed now too. So we're very much inspired by what we're seeing at Saudi Research and Media Group thanks to its ability to profitably reinvest capital.

The Bottom Line On Saudi Research and Media Group's ROCE

In summary, it's great to see that Saudi Research and Media Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 136% 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.

While Saudi Research and Media Group looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 4210 is currently trading for a fair price.

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.

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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.