Why You Should Care About Perfect Presentation for Commercial Services' (TADAWUL:7204) Strong Returns On Capital

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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.

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)

0.40 = ر.س150m ÷ (ر.س1.0b - ر.س657m) (Based on the trailing twelve months to September 2023).

So, Perfect Presentation for Commercial Services has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 30% earned by companies in a similar industry.

See our latest analysis for Perfect Presentation for Commercial Services

In the above chart we have measured Perfect Presentation for Commercial 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 Perfect Presentation for Commercial Services for free.

The Trend Of ROCE

Perfect Presentation for Commercial Services deserves to be commended in regards to it's returns. Over the past four years, ROCE has remained relatively flat at around 40% and the business has deployed 405% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Perfect Presentation for Commercial Services' current liabilities are still rather high at 63% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

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. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know more about Perfect Presentation for Commercial Services, we've spotted 3 warning signs, and 2 of them are significant.

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.