Investors Shouldn't Overlook The Favourable Returns On Capital At Perfect Presentation for Commercial Services (TADAWUL:7204)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Perfect Presentation for Commercial Services' (TADAWUL:7204) ROCE trend, we were very happy with what we saw.

We've discovered 2 warning signs about Perfect Presentation for Commercial Services. View them for free.

Understanding 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. The formula for this calculation on Perfect Presentation for Commercial Services is:

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

0.31 = ر.س180m ÷ (ر.س1.4b - ر.س848m) (Based on the trailing twelve months to December 2024).

So, Perfect Presentation for Commercial Services has an ROCE of 31%. In absolute terms that's a very respectable return and compared to the IT industry average of 29% it's pretty much on par.

View our latest analysis for Perfect Presentation for Commercial Services

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

What The Trend Of ROCE Can Tell Us

Perfect Presentation for Commercial Services deserves to be commended in regards to it's returns. The company has employed 616% 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. You'll see this when looking at well operated businesses or favorable business models.

Another thing to note, Perfect Presentation for Commercial Services has a high ratio of current liabilities to total assets of 59%. 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.

Our Take On Perfect Presentation for Commercial Services' ROCE

In short, we'd argue Perfect Presentation for Commercial Services has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Yet over the last year the stock has declined 29%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

On a separate note, we've found 2 warning signs for Perfect Presentation for Commercial Services you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.