Capital investments at Jarir Marketing (TADAWUL: 4190) point to a promising future
If we are to find a title that could multiply in the long run, what are the underlying trends that we need to look for? First, we would like to identify a growth return on capital employed (ROCE) and at the same time, a based capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. With this in mind, the ROCE of Jarir Marketing (TADAWUL: 4190) looks attractive right now, so let’s see what the yield trend can tell us.
Understanding Return on Capital Employed (ROCE)
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. To calculate this metric for Jarir Marketing, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.45 = .س 1.1 b ÷ (ر.س 4.0 b – ر.س 1.6 b) (Based on the last twelve months up to March 2021).
Therefore, Jarir Marketing has a ROCE of 45%. In absolute terms, that’s a great return and it’s even better than the specialty retail industry average of 10%.
Check out our latest review for Jarir Marketing
Above you can see how Jarir Marketing’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you like, you can check out the analysts’ forecasts covering Jarir Marketing here for free.
The ROCE trend
We would rather be satisfied with a return on capital like Jarir Marketing. The company has steadily gained 45% over the past five years, and the capital employed within the company has increased by 52% during this period. Now that the ROCE is attractive at 45%, this combination is actually quite attractive because it means that the company can constantly put money in to work and generate those high returns. You’ll see this by looking at well-run companies or favorable business models.
In summary, we are delighted to see that Jarir Marketing has compounded returns by reinvesting at consistently high rates of return, as these are common characteristics of a multi-bagger. And the stock has performed incredibly well with a return of 216% over the past five years, so long-term investors are no doubt delighted with the result. So while the positive underlying trends can be explained by investors, we still believe this stock is worth looking into.
One more thing to note, we have identified 1 warning sign with Jarir Marketing and understand that it should be part of your investment process.
If you’d like to see other companies driving high returns, check out our free List of high yielding companies with strong balance sheets here.
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