Return Trends At Aamal Company Q.P.S.C (DSM:AHCS) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Aamal Company Q.P.S.C (DSM:AHCS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Aamal Company Q.P.S.C is:

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

0.04 = ر.ق326m ÷ (ر.ق9.0b - ر.ق913m) (Based on the trailing twelve months to June 2023).

So, Aamal Company Q.P.S.C has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 5.8%.

Check out our latest analysis for Aamal Company Q.P.S.C

In the above chart we have measured Aamal Company Q.P.S.C'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 Aamal Company Q.P.S.C.

How Are Returns Trending?

Things have been pretty stable at Aamal Company Q.P.S.C, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Aamal Company Q.P.S.C to be a multi-bagger going forward. That probably explains why Aamal Company Q.P.S.C has been paying out 73% of its earnings as dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

The Bottom Line

In a nutshell, Aamal Company Q.P.S.C has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 11% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing, we've spotted 1 warning sign facing Aamal Company Q.P.S.C that you might find interesting.

While Aamal Company Q.P.S.C 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.