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Are Riyadh Cement Company’s (TADAWUL:9512) Mixed Financials The Reason For Its Gloomy Performance on The Stock Market?


Riyadh Cement (TADAWUL:9512) has had a rough month with its share price down 9.1%. It is possible that the markets have ignored the company’s differing financials and decided to lean-in to the negative sentiment. Fundamentals usually dictate market outcomes so it makes sense to study the company’s financials. Specifically, we decided to study Riyadh Cement’s ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

View our latest analysis for Riyadh Cement

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Riyadh Cement is:

8.2% = ر.س136m ÷ ر.س1.7b (Based on the trailing twelve months to June 2022).

The ‘return’ is the yearly profit. Another way to think of that is that for every SAR1 worth of equity, the company was able to earn SAR0.08 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Riyadh Cement’s Earnings Growth And 8.2% ROE

It is quite clear that Riyadh Cement’s ROE is rather low. However, when compared to the industry average of 5.8%, we do feel there’s definitely more to the company. And more so given that Riyadh Cement has grown its net income at an acceptable rate of 7.1%. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. For instance, the company has a low payout ratio or is being managed efficiently

Next, on comparing with the industry net income growth, we found that Riyadh Cement’s reported growth was lower than the industry growth of 13% in the same period, which is not something we like to see.

SASE:9512 Past Earnings Growth December 8th 2022

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Riyadh Cement fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Riyadh Cement Using Its Retained Earnings Effectively?

Riyadh Cement has a significant three-year median payout ratio of 99%, meaning that it is left with only 0.8% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Along with seeing a growth in earnings, Riyadh Cement only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.


On the whole, we feel that the performance shown by Riyadh Cement can be open to many interpretations. Although the company has grown its earnings moderately as a result of its respectable ROE, yet, the business is retaining hardly any of its profits. This might have negative implications on the company’s future growth prospects. Having said that, looking at the current analyst estimates, we found that the company’s earnings are expected to gain momentum. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.

Valuation is complex, but we’re helping make it simple.

Find out whether Riyadh Cement is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.


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