Returns At QinetiQ Group (LON:QQ.) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over QinetiQ Group's (LON:QQ.) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for QinetiQ Group:

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

0.12 = UK£180m ÷ (UK£2.1b - UK£608m) (Based on the trailing twelve months to March 2023).

So, QinetiQ Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 10% generated by the Aerospace & Defense industry.

View our latest analysis for QinetiQ Group

In the above chart we have measured QinetiQ Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for QinetiQ Group.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 73% in that time. 12% is a pretty standard return, and it provides some comfort knowing that QinetiQ Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On QinetiQ Group's ROCE

In the end, QinetiQ Group has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 33% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

QinetiQ Group could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While QinetiQ Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.