Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Mobile Telecommunications Company Saudi Arabia is:

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

0.058 = ر.س1.1b ÷ (ر.س28b - ر.س9.4b) (Based on the trailing twelve months to June 2023).

Therefore, Mobile Telecommunications Company Saudi Arabia has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Wireless Telecom industry average of 9.8%.

Check out our latest analysis for Mobile Telecommunications Company Saudi Arabia

Above you can see how the current ROCE for Mobile Telecommunications Company Saudi Arabia compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Mobile Telecommunications Company Saudi Arabia.

What Can We Tell From Mobile Telecommunications Company Saudi Arabia's ROCE Trend?

Mobile Telecommunications Company Saudi Arabia is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 73% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 33% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Mobile Telecommunications Company Saudi Arabia's ROCE

In summary, we're delighted to see that Mobile Telecommunications Company Saudi Arabia has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 117% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Mobile Telecommunications Company Saudi Arabia does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant...

While Mobile Telecommunications Company Saudi Arabia may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.