Identifying a potential multi-bagger often involves spotting key trends. A company should ideally exhibit two things: a rising return on capital employed (ROCE) and a growing amount of capital employed. This indicates the company has profitable ventures to reinvest in, acting as a compounding machine. The Saudi Arabian Mining Company (Ma’aden) (TADAWUL:1211) is showing promising trends worth exploring further.
Understanding Return On Capital Employed (ROCE)
ROCE measures the pre-tax profit generated from the capital employed in a business. For Ma’aden, the calculation is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
With an ROCE of 5.3%, Ma’aden underperforms the industry average of 12%.
Trends in Returns
Ma’aden’s ROCE has grown significantly, increasing by 117% over five years with stable capital employed. This suggests higher efficiency but could also imply limited internal investment opportunities for organic growth.
Insights from Ma’aden’s ROCE
Ma’aden’s improved capital returns have resulted in a remarkable 267% total return over the last five years, indicating future potential. However, investors should note one warning sign for Ma’aden that merits attention.
For those seeking companies with robust earnings, a free list of firms with strong balance sheets and high returns on equity is available.
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This analysis by Simply Wall St is based on historical data and analyst forecasts. It is not financial advice or a stock recommendation. Our aim is to provide long-term analysis based on fundamental data, not accounting for recent company announcements.
