Returns On Capital Are Showing Encouraging Signs At National Gas and Industrialization (TADAWUL:2080)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at National Gas and Industrialization (TADAWUL:2080) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for National Gas and Industrialization, this is the formula:

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

0.064 = ر.س132m ÷ (ر.س2.7b - ر.س585m) (Based on the trailing twelve months to September 2024).

Therefore, National Gas and Industrialization has an ROCE of 6.4%. In absolute terms, that's a low return but it's around the Gas Utilities industry average of 7.9%.

View our latest analysis for National Gas and Industrialization

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how National Gas and Industrialization has performed in the past in other metrics, you can view this free graph of National Gas and Industrialization's past earnings, revenue and cash flow.

So How Is National Gas and Industrialization's ROCE Trending?

National Gas and Industrialization 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 93% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that National Gas and Industrialization has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 300% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if National Gas and Industrialization can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing National Gas and Industrialization that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.