If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. Typically, we will want to notice a growth trend to come back on capital employed (ROCE) and at the same time, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. So when we looked National industrialization (TADAWUL:2060) and its ROCE trend, we really liked what we saw.

    Understanding return on capital employed (ROCE)

    For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. Analysts use this formula to calculate it for national industrialization:

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

    0.025 = $514 million ÷ ($25 billion – $5.2 billion) (Based on the last twelve months to September 2022).

    So, National industrialization has a ROCE of 2.5%. In absolute terms, this is a low yield and it is also below the chemical industry average of 11%.

    Check out our latest analysis for national industrialization

    one year
    SASE:2060 Return on Capital Employed January 25, 2023

    In the chart above, we measured National Industrialization’s past ROCE against its past performance, but the future is arguably more important. If you wish, you can consult the forecasts of analysts covering national industrialization here for free.

    What the ROCE trend can tell us

    Even though ROCE is still weak in absolute terms, it is good to see that it is heading in the right direction. Data shows that capital returns have increased by 241% over the past five years. The company now earns ر.س.0.03 per dollar of capital employed. Speaking of capital employed, the company is actually using 27% less than five years ago, which may be a sign of a company improving efficiency. If this trend continues, the company might become more efficient, but it is decreasing in terms of total assets.

    In conclusion…

    From what we have seen above, domestic industrialization has succeeded in increasing its returns to capital while reducing its capital base. And since the stock has fallen 24% in the past five years, there could be an opportunity here. With that in mind, we believe the promising trends warrant further investigation of this stock.

    Finally we found 1 warning sign for national industrialization which we think you should be aware of.

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

    Valuation is complex, but we help make it simple.

    Find out if National industrialization is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

    See the free analysis

    This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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