Arabian Internet and Communication Services (TADAWUL:7202) Might Become A Compounding Machine

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. 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 Arabian Internet and Communication Services (TADAWUL:7202), we liked what we saw.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. The formula for this calculation on Arabian Internet and Communication Services is:

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

0.29 = ر.س1.7b ÷ (ر.س12b - ر.س5.9b) (Based on the trailing twelve months to March 2025).

So, Arabian Internet and Communication Services has an ROCE of 29%. In absolute terms that's a very respectable return and compared to the IT industry average of 27% it's pretty much on par.

See our latest analysis for Arabian Internet and Communication Services

In the above chart we have measured Arabian Internet and Communication Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Arabian Internet and Communication Services for free.

What The Trend Of ROCE Can Tell Us

In terms of Arabian Internet and Communication Services' history of ROCE, it's quite impressive. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 241% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 51% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

Our Take On Arabian Internet and Communication Services' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And given the stock has only risen 22% over the last three years, we'd suspect the market is beginning to recognize these trends. So to determine if Arabian Internet and Communication Services is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 7202 that compares the share price and estimated value.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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.