Theeb Rent A Car (TADAWUL:4261) Is Investing Its Capital With Increasing Efficiency

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in Theeb Rent A Car's (TADAWUL:4261) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Theeb Rent A Car:

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

0.35 = ر.س453m ÷ (ر.س2.0b - ر.س749m) (Based on the trailing twelve months to September 2023).

Thus, Theeb Rent A Car has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for Theeb Rent A Car

Above you can see how the current ROCE for Theeb Rent A Car 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 Theeb Rent A Car.

How Are Returns Trending?

The trends we've noticed at Theeb Rent A Car are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 35%. Basically the business is earning more per dollar of capital invested and in addition to that, 92% more capital is being employed now too. So we're very much inspired by what we're seeing at Theeb Rent A Car thanks to its ability to profitably reinvest capital.

Our Take On Theeb Rent A Car's ROCE

To sum it up, Theeb Rent A Car has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 11% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Theeb Rent A Car (of which 1 doesn't sit too well with us!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.