Saudi Public Transport (TADAWUL:4040) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Saudi Public Transport (TADAWUL:4040) and its trend of ROCE, we really liked what we saw.

Our free stock report includes 1 warning sign investors should be aware of before investing in Saudi Public Transport. Read for free now.

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. Analysts use this formula to calculate it for Saudi Public Transport:

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

0.071 = ر.س176m ÷ (ر.س3.9b - ر.س1.4b) (Based on the trailing twelve months to March 2025).

Thus, Saudi Public Transport has an ROCE of 7.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.6%.

View our latest analysis for Saudi Public Transport

Historical performance is a great place to start when researching a stock so above you can see the gauge for Saudi Public Transport's ROCE against it's prior returns. If you're interested in investigating Saudi Public Transport's past further, check out this free graph covering Saudi Public Transport's past earnings, revenue and cash flow.

How Are Returns Trending?

Saudi Public Transport's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 302% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 36% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Key Takeaway

As discussed above, Saudi Public Transport appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 10% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 1 warning sign with Saudi Public Transport and understanding this should be part of your investment process.

While Saudi Public Transport 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.