Capital Investments At Al Moammar Information Systems (TADAWUL:7200) Point To A Promising Future

By
Simply Wall St
Published
June 07, 2021
SASE:7200
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 ran our eye over Al Moammar Information Systems' (TADAWUL:7200) trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Al Moammar Information Systems, this is the formula:

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

0.31 = ر.س107m ÷ (ر.س1.2b - ر.س813m) (Based on the trailing twelve months to March 2021).

So, Al Moammar Information Systems has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

View our latest analysis for Al Moammar Information Systems

roce
SASE:7200 Return on Capital Employed June 8th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Al Moammar Information Systems' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Al Moammar Information Systems' history of ROCE, it's quite impressive. The company has employed 102% more capital in the last five years, and the returns on that capital have remained stable at 31%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

Another thing to note, Al Moammar Information Systems has a high ratio of current liabilities to total assets of 70%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In short, we'd argue Al Moammar Information Systems has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 230% return to those who've held over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 2 warning signs with Al Moammar Information Systems (at least 1 which is concerning) , and understanding them would certainly be useful.

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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