Why You Should Care About Jarir Marketing's (TADAWUL:4190) Strong Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Jarir Marketing (TADAWUL:4190), we liked what we saw.

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. Analysts use this formula to calculate it for Jarir Marketing:

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

0.44 = ر.س1.1b ÷ (ر.س4.0b - ر.س1.5b) (Based on the trailing twelve months to December 2020).

Therefore, Jarir Marketing has an ROCE of 44%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 12%.

Check out our latest analysis for Jarir Marketing

In the above chart we have measured Jarir Marketing's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Jarir Marketing.

How Are Returns Trending?

Jarir Marketing deserves to be commended in regards to it's returns. The company has consistently earned 44% for the last five years, and the capital employed within the business has risen 52% in that time. Now considering ROCE is an attractive 44%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

Jarir Marketing has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 165% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Jarir Marketing does come with some risks, and we've found 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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