Theeb Rent A Car (TADAWUL:4261) Has More To Do To Multiply In Value Going Forward

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Theeb Rent A Car (TADAWUL:4261), it didn't seem to tick all of these boxes.

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. To calculate this metric for Theeb Rent A Car, this is the formula:

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

0.16 = ر.س152m ÷ (ر.س1.5b - ر.س580m) (Based on the trailing twelve months to December 2021).

So, Theeb Rent A Car has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 4.9% it's much better.

Check out our latest analysis for Theeb Rent A Car

In the above chart we have measured Theeb Rent A Car's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Theeb Rent A Car.

So How Is Theeb Rent A Car's ROCE Trending?

Things have been pretty stable at Theeb Rent A Car, with its capital employed and returns on that capital staying somewhat the same for the last two years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Theeb Rent A Car in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Theeb Rent A Car has been paying out a decent 47% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

Our Take On Theeb Rent A Car's ROCE

We can conclude that in regards to Theeb Rent A Car's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 18% over the last year, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know more about Theeb Rent A Car, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

While Theeb Rent A Car isn't earning the highest return, check out this free list of companies that are 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.