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華爾街日報Saudi Chemical Holding (TADAWUL:2230) Might Have The Makings Of A Multi-Bagger
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Saudi Chemical Holding's (TADAWUL:2230) 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. To calculate this metric for Saudi Chemical Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = ر.س432m ÷ (ر.س6.4b - ر.س3.5b) (Based on the trailing twelve months to September 2025).
Therefore, Saudi Chemical Holding has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Healthcare industry average of 14%.
Check out our latest analysis for Saudi Chemical Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for Saudi Chemical Holding's ROCE against it's prior returns. If you're interested in investigating Saudi Chemical Holding's past further, check out this free graph covering Saudi Chemical Holding's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at Saudi Chemical Holding are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
On a side note, Saudi Chemical Holding's current liabilities are still rather high at 55% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
What We Can Learn From Saudi Chemical Holding's ROCE
To sum it up, Saudi Chemical Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 91% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a final note, we've found 1 warning sign for Saudi Chemical Holding that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.